Mutual fund and its types

A mutual fund is a company that pools investors' money to make multiple types of investments, known as the portfolio. Stocks, bonds, and money market funds are all examples of the types of investments that may make up a mutual fund. The mutual fund is managed by a professional investment manager who buys and sells securities for the most effective growth of the fund. As a mutual fund investor, you become a "shareholder" of the mutual fund company. When there are profits you will earn dividends. When there are losses, your shares will decrease in value. Mutual funds are, by definition, diversified, meaning they are made up a lot of different investments. That tends to lower your risk (avoiding the old "all of your eggs in one basket" problem). Because someone else manages them, you don't have to worry about diversifying individual investments yourself or doing your own record keeping. That makes it easier to just buy them and forget about them. That's not always the best strategy, however since your money is in someone else hands, after all. So, a little bit of research always comes in handy. Since the fund manager compensation is based on how well the fund performs, you can be assured they will work diligently to make sure the fund performs well. Managing their fund is their full-time job!

Mutual funds are classified on the basis of their underlying investments such as debt, equity or balanced funds. There are two broad categories:

1) Close-ended fund Under a CEF, investors have to lock their investment for the period specified in the offer document issued at the time of the launch of the fund. The investors can buy units directly from the fund only during the 'new fund offer' (NFO) period. Thereafter, any transaction relating to buying or selling of units has to be done through the stock market, like any other scrip listed at the stock exchanges. While an investor has to compromise on liquidity, a fund manager of a CEF can provide better returns than OEF as he is not subjected to the pressure of redemption's on an ongoing basis.

2) Open-ended fund (An open-ended fund is one which is always open to accept money from investors and to return the money back to investors. An open-ended fund indicates that the AMC is always ready to accept money from investors and always willing to return the amount whenever investors demand it.

Learn to Invest

Return and risk are main concerns while investing financially in things. We have to pay bank fees for money transfers, brokerage fees, and lawyer fees along with inflation and tax, so the return we are getting from our investment need to be reasonable.

These, of course, are all reliant on what you are investing in and how much money you are looking at investing. When it comes to risk the big thing is to be able to trust the organizations you are investing with. Given the recent turn of events with some of the worlds major financial organizations it seems good, solid low risk money are becoming harder and harder to find.

This is where, alongside we all want to have it on easy street, and an investment looks like it could pay us to do nothing, the reality is that we may end up just risking everything we have worked so hard to get in the first place. Therefore the first rule of thumb, when it comes whether or not we want to choose investing as a way to create wealth, has to be "do not put all your eggs in one basket". If that basket drops, you loose all your eggs at once. So, you must expand.

For example, if you had, say 100,000 to invest your portfolio might look something like this: 20,000 trust fund, 30,000 Stock market, 30,000 long term banked, 20,000 property. Not 100,000 long term banked. The reason for this diversification is simple. Some investments pay better than others and you do not want to be tying all your funds up in a long term, low yield venture when you could be making a lot more money by diversifying.

The second rule of investment has to be, for me at least, to do the homework. And if you cannot do that yourself then don't even bother with investing. I am serious. Just leave it up to your local bank manager to earn you the standard 5 - 10 % per year. If you want to make create out of investing you are going to have to become business minded.

Now I don't know about you but I would not be too comfortable allowing anyone else to mind my business for me not unless I understood the workings of it before I left it to go on holiday. And that is essentially what you do when you invest. You "go on holiday", you 'take a break' from your money (business) in the hope that when you come back, six or nine months later, or whatever, that you will be richer than when you left. How else would I know if I was getting ripped off or not unless I knew how my business worked and what I should be getting charged in order to make it work?

Making money has never been an easy game, but that is only because people have deliberately held back the information. Anything is easy when you know how, right?

You see, a savvy investor is also one who knows a good deal when they see one. A savvy investor is always on the lookout for another good, money making venture, especially one which costs very little to get into and has the potential to make a lot. You don't need to look very far to find one, you just need to be able to recognize what one looks like.