Most of the existing investment instruments require considerable knowledge and practical experience in their use. It is especially necessary to do without special knowledge if you expect to receive a significant share of the profit. But what about those who do not have the time or desire to “immerse themselves in the material”? We advise you to pay attention to mutual funds based on the principle of fiduciary capital management.
Mutual investment funds are engaged in the accumulation of funds that are invested in various projects with the aim of making a profit. The creation of the fund, its legal registration and direct management of affairs is carried out by the management company. She, within the terms pre-agreed by the contract, distributes the fund’s income among investors, in proportion to the shares they have.
Among all possible areas of investment, mutual funds invest in:
- stock;
- bonds;
- real estate;
- certificates of deposit and deposits;
- mortgage;
- loans;
- artistic values, etc.
The activities of investment funds are regulated at the legislative level, which helps reduce the risks of fraud in this area. At the same time, no one can insure the investor against the risk of reduction or even loss of invested funds. Mutual investment funds in Russia can only predict the return on investment in them. This is done on the basis of a superficial analysis of the market and indicators of past reporting periods. But any guaranteed income in this area is extremely rare.
Investing money in a mutual fund involves the investor purchasing part of his assets - an investment share. Most of the funds set a minimum contribution for such a share, which is measured in shares of the total assets of the mutual fund. An investment share of the fund certifies the participation of its owner in the association of investors and gives the right to receive a portion of the profit. The investor has the right to demand productive trust management of funds, the right to control the management company, and the right to compensation for the value of the share in the event of termination of the agreement and violation of its terms. In addition, an investment unit is a security that can be sold, purchased or provided as collateral.
As for the risks of loss of capital, in comparison with other investment options they are not that great. As a rule, such funds are created by large management companies with experience in investment activities. Mutual funds that declare conservative principles of their work are close in reliability to banking structures. However, the return on investment in them is hardly higher than bank deposits.
Not all funds are distinguished by the conservatism of their investment strategies. Thus, in exchange for higher risks, an investor can receive an annual return equal to 40-60%, and in some cases 100% of the initial investment. In any case, the profitability of the fund directly depends on the chosen instruments and the aggressiveness of the operating principles.
Types of mutual funds
Any private investor who wants to invest money in mutual funds must understand their types and understand the differences. Experts divide all investment funds existing in Russia into several types:
- Open-ended mutual fund. In it, investors are given the right to freely dispose of their shares. Investments in such funds are characterized by high levels of liquidity and accessibility for the general public, due to the minimum amounts for contributions.
- Interval mutual fund. The contracts pre-establish time intervals in which unit owners have the right to sell their shares. Similar rules are established for withdrawal of funds.
- Closed-end mutual investment fund. Such funds operate for a strictly defined period, at least 5 years. The sale and withdrawal of funds before the expiration of the mutual fund's existence is excluded, however, in some cases, the sale of shares to other fund participants is allowed. A closed mutual fund is a kind of private club of investors created for a specific project. The cost of shares is calculated in millions of dollars, which is why participation in them is available only to wealthy investors.
There is a classification of mutual funds according to investment areas. It distinguishes:
- Equity funds. The primary investment direction of such funds is shares. Potentially, such funds have the highest levels of profitability, but are also characterized by fairly large risks. According to expert reviews, the most promising investments in equity funds will be long-term investments.
- Bond funds. They are distinguished by their conservatism, since bonds offer lower but stable returns. Ideal for investors looking for the most reliable and long-term investment instruments.
- Money market funds. The bulk of the assets of such funds is contained in deposits, thanks to which they are characterized by a guaranteed, but relatively small profitability.
- Index funds. Index funds are held in shares of companies represented on the stock market. Their main income is earnings from stock indices. It should be noted that with relatively small risks, it can be quite high.
- . Each such mutual investment fund is the founder of an enterprise. The creation of such funds is aimed at a specific type of business or commercial structure. According to investor reviews, investments in private equity funds are characterized by increased risks with high rates of return.
- Real estate funds. The goal is to invest money in a specific construction project. Such mutual funds are predominantly closed organizations. They are created for a long period, which is why they are distinguished by long-term investments. A fairly attractive investment option characterized by high returns. It is especially attractive among wealthy players.
- Mixed investment funds. The assets of such funds are contained in various financial instruments. They differ in average rates of return and average investment terms. Investing in mutual funds of this category allows investors to diversify risks as comfortably and quickly as possible.
Advantages of mutual funds for investors
According to reviews from professional investors, we will highlight the main advantages of investing in mutual funds:
- Transparency of investment activities. In addition to strict government control over the activities of mutual funds, an important factor of trust in them is the transparency of their activities. Anyone can find financial statements of organizations in the public domain, which eliminates fraud.
- Trust management allows you to make investments in any investment instruments, even without the necessary knowledge. Professional management minimizes risks as much as possible.
- By investing in a fund that has assets of different types, the investor has the opportunity to expand the possibility of making a profit within the framework of one project.
- Availability of mutual funds. Establishing minimum amounts for deposits makes investing in them the simplest way to invest. Such investments are available today to most potential investors.
- Investment units have high liquidity, which means that investors in most open mutual funds have the opportunity to withdraw their funds at any time during the fund’s existence.
How to choose a mutual fund?
The most common mistake that novice Russian investors make when choosing an investment fund is the fact that they pay attention to the institution’s profitability indicators. According to the objective opinion of large players, the profitability amount is relative, since it is predicted and not calculated. Using this approach in choosing a fund, there is a high probability of investing in a mutual fund with an aggressive strategy, which can show stable high results only as an exception.
According to experts, when choosing a fund, it is important to proceed from the tasks, goals and priorities in investment activities that you have set for yourself. In view of this, let us consider the aspects that should influence the investor’s choice:
- The main goal of any investment activity is to make a profit. If the goal is a large income, you need to take into account that it will necessarily be associated with large risks of losing the invested money. If they want to minimize possible losses, investors should focus on equity funds. If you want to minimize risks, bond funds are perfect.
- Investment terms. When it comes to short-term investments, you will have to choose between bond funds and money market funds. Longer-term investments are possible in real estate or stock funds.
- Amount of capital. The basic rule: the smaller the investment amount, the narrower the range of possible mutual funds to choose from. Generally, minimum contribution amounts are invested in money market, stock and mixed funds.
- Rating. The Internet is replete with all sorts of ratings of mutual funds, depending on various criteria - profitability, volume of assets, funds raised, etc. When choosing between them, use only verified and authoritative sources.
- Availability of a license. Before investing, read the documents of the fund you have chosen and its license for investment activities. Be sure to check the availability of the Trust Management Rules.
In any case, regardless of the fund you choose, you must be aware of the essence of your actions, taking into account the possible consequences given above. Without understanding the operating mechanisms, entry conditions, management control schemes, there will be no point in investing your funds in any fund. By studying the details of the activities of mutual funds and choosing several investment funds for investments, you will create conditions under which your capital will definitely generate profit, even if investments are made in the simplest, but conservative and reliable mutual funds.