A mutual fund is a pool of investors’ money invested and managed by an investment adviser. Money can be invested in the fund or withdrawn at any time, with few restrictions, at net asset value minus any loads and or fees. It is very easy to diversify your investments in mutual funds since the amount invested per fund has just moderate minimum investments limits to attract a wider market. Mutual funds simply enable investors to construct a portfolio easier than they could if they wanted to crack the bone alone.
There are many classes of mutual funds. Here are a few of the most common. Money market funds invest in shorter term securities and cash deposits which mature after a just a few weeks or months, they are usually classed as a low risk investment. Index funds usually buy shares of a particular category of stock with a specified index. Sector funds are used to buy stocks in a given sector of the economy. This could be the finance, agricultural or technology sector and others. Growth funds are invested in companies that are commanding a lot of growth potential.
Investment in reputable government bonds is usually the safest as these governments are known never to default although they can yield relatively lower returns. Less reputable government bonds should be avoided regardless of potential upside. Income funds seek current incomes with vigor as compared to growth. Thus, they yield coupon payments when invested in bonds and dividends when invested in stocks. International funds are invested in stocks in other countries and other foreign investments. They may diversify across different markets or concentrate on a single market across the globe. Because they are not investing in a single country you will not be putting all your eggs in one basket. Their risk level is therefore lower than single country investments but higher than traditional funds.
For investors with the urge to earn more and the willingness to take risks, they should consider emerging markets, countries where there is the possibility of market expansion but maybe a political issue that could affect potential returns.. Hedge funds involve the highest risk and therefore may yield the highest amount of returns or incur the highest losses, these do not suit beginners but should be incorporated into the portfolios of experienced investors, and typically they require larger initial investment capital than most other sectors.
It is essential that an investor considers not only the returns involved in a particular class of mutual funds, but also the risk undertaken. Three major factors are used to assess the risk level of mutual funds. The standard deviation will show how much the fund will fluctuate in its average returns, beta measures how volatile the fund has been and the quarterly figures will reflect how the fund is currently performing.
Statistics have proven that the most successful investors are those who use mixed strategies incorporating a few of the above fund types. Various types of mutual funds have their separate performance history some can be straight line steady growth whilst others will be up or down constantly. You can check a huge selection of offshore mutual funds via several money sites or use one the fund platform services to track and monitor the ones you prefer. Fund pricing can be on a daily, weekly or monthly basis, it is important to check the dealing frequency prior to purchase.