Whether share funds (Mutual funds) have minuses?Recently I became interested in activity of Mutual funds. To invest in them means, on assurances of many people, quite favourably. But not everything is as simple as it seems at first sight. Mutual funds have not only positive, but also negative sides.
Erdman`s book " helped to understand it to me; 1000% for 5 years or the truth about mutual funds “. In it Erdman is a big expert in the field of share funds - calls the attractive parties of mutual funds following :
1. The mutual fund is the organization which is controlled not only by investors, but also the state. There is a daily reporting before investors (shareholders) on the cost of a share and structure of a portfolio of fund. The mutual fund is the most transparent type of investment.
2. All mutual funds are subdivided on the orientation therefore the investor can always sorentirovatsya what strategy of work this or that fund, so what risk and profitability can be expected from it has.
3. Availability not only for large, but also for average and even small investors. The minimum starting capital which is necessary to the investor makes from 10 thousand rubles now. It is possible to look at a rating of mutual funds on the starting capital of info/publ/11 - 1 here - 0 - 162
4. The shareholder of mutual fund does not need special knowledge of investment and for business management at the exchanges. For it employees of fund work at the exchange.
5. The shareholder of mutual fund does not need to think of diversification of the investments, for it it is done by employees of fund.
6. The small investor has an opportunity to gain the same percent of income, as at the large investor. All shareholders are equal in mutual fund and gain the income in proportion to quantity of the bought shares.
7. Unlike a financial pyramid the mutual fund has a real source of profit (growth of cost of a share). Besides, a pyramid is what surely will sometime disappear together with your money. And the payevy fund is controlled by the state.
8. Unlike a bank deposit the mutual fund can give to the investor bigger percent of profit.
But mutual funds have also negative sides, and it is worth to remember about them at investment.
Minuses of share funds
1. Management companies do not guarantee growth of cost of a share.
However, in - the first, nobody can foresee behavior of the market. In - the second, any recession of the market is an opportunity to buy even more good papers at below cost prices. Therefore here it is possible to say that this minus as if and not absolutely minus …
2. Some managing directors of mutual investment funds lose to average values of the market from year to year! It occurs because they and do not try to make the prize. Such companies behave almost like simple pyramid, increasing the potential only due to advertizing of fund, but not at the expense of successful investments. And from where such companies have money for advertizing? Of course, from money of investors! You think, it is not enough such companies? Far from it, according to the estimates of specialists of such companies more than a third.
3. Exist so-called “ custom “ share funds which are created only in order that it is favorable to sell own bonds or shares. Such funds, of course, do not concern any investments in other actions and about any favorable investment of money here the speech does not go.
4. Artificial overestimate of cost of a share (so-called “ downloading “ portfolio).
Becomes it approximately so: some days before the reporting period managing directors of fund buy in addition in a large number of the share of the company which already is in their portfolio. Thereby they intentionally disperse it in the price that leads to artificial increase in cost of assets of fund. As soon as reports are handed over and the cost of a share is known, the fund fast dumps unnecessary actions. It leads to inevitable recession of cost of a share, but the result is achieved - speak about fund. Most often interval funds resort to such cunnings. I pay your attention that, as well as in the previous case, the carried-out operations are legal.
5. “ Decoration of a show-window “ fund. The matter is that the managing director of share fund submits the report on structure of a portfolio of fund to certain dates. On structure of a portfolio shareholders judge professionalism of the managing director of fund. For this reason before the report some managing directors “ decorate a show-window “ the fund. Those actions which grew for the last months are bought in addition by an urgent order in a portfolio and vice versa, those that fell, clean up from it. Thus, occurs “ renovation “ a portfolio, speaking about professionalism of the managing director who chose such good actions. It does not affect real result in any way, and here “ dust in eyes “ it is possible to fill.
6. Often it happens that the management company has too big costs for the work. Experts claim what in the USA is spent for management of mutual funds on average twice less, than in Russia! Moreover, some funds do not want to reduce costs at all even if their sum of net assets grew in recent years in hundreds of times! Naturally, I understand that also costs for management of fund grew, to operate big assets much more difficult, than small. But anyway costs are not proportional to that collecting with which we are assessed by many funds.
7. Sometimes money from share funds under cover of different operations is just withdrawn from " fund; on the party “ and are practically stolen.
Thus, it is impossible to choose funds, based on advertizing, on results of the last quarter or year or on the list of the papers presented in fund. The choice of a method of selection of fund it is necessary to treat as seriously, as the choice of the car or the companion of life. The choice of fund is very difficult, laborious and responsible business.
It is made on materials of the book of Erdman “ 1000% for 5 years or all truth about mutual funds “.