Rus Articles Journal

What is mutual fund?

As soon as the citizen get spare cash or, we will tell differently, available funds in which it has no instant requirement, it is possible to call him the potential investor, and his money - the capital. However, to be called the full-fledged investor, it is necessary for him the capital where - nibud to enclose.

Development of the financial markets so expanded tools and ways of an investment of money that sometimes it becomes difficult for inhabitant to understand all variety of investment alternatives. Let`s stop in more detail on mutual funds - mutual investment funds.

At investment of capital in mutual fund the contract of trust management with management company is signed. The mutual fund in this case acts as there is nobody an investment portfolio which means will be made of deposits of a great number of shareholders. Further the raised money is invested by management company in securities, bank deposits, real estate, etc. If the management company competently disposed of the means entrusted it, then the cost of property of mutual fund increases, increasing the income of the shareholder. Owing to incorrect management of a portfolio the cost of investments falls that means for the shareholder reduction of cost of the shares belonging to it, or simply losses.

The mutual fund belongs to number of collective investments. It means that assets where means are invested, are in collective property of all shareholders, and the certain investor possesses only some share in this general capital. This share is called a share which represents a special type of securities.

The share has no par value, and the number of shares which belongs to one shareholder can be expressed by fractional number. Thus, the investor can possess 2,1 shares or 0,19. This one of distinctive features of a share as security since any other security cannot be acquired by shares.

Mutual funds are attractive to the investor for several reasons.

In - the first , for investment into mutual fund is not required to possess professional skills, rather just to choose the interesting management company. However, that to choose it, it is necessary to have an idea of what is mutual fund, management company and what requirements are imposed to quality of management of assets of fund.

a clear advantage of mutual funds can call the Second limited risk since collective investment is subject to rigid regulation from the state. Following advantage - it is tax regime. Shareholders though pay a tax, but only at the time of realization of a share. The shareholder should not pay a tax on the profit got from operations with securities which make property of fund. Besides, the majority of investment companies are tax agents, i.e. pay to the state the shareholder`s taxes automatically, exempting it from bustle in tax.

However mutual funds have also some shortcomings .

In - the first , is expenses which can seem quite big concerning other forms of investment. The matter is that the legislation establishes the maximum size of expenses which lay down on the shareholder, of 10%.

In - the second , liquidity of investments in mutual fund is quite low. The legislation provides term till 3 days on satisfaction of the application for acquisition or repayment of shares. Moreover, it will be possible to get the refund really only in 15 days (this term can be less depending on rules of trust management of mutual fund).

Three types of mutual funds divide : open, interval and closed. The difference between them is very simple. Open mutual fund can buy or sell a share to management company in any working day, interval - in certain periods (intervals). Shares closed fund are shown to repayment of management company only after the termination of period of validity of the contract of trust management. However, only in the closed mutual funds the intermediate income is paid.

For the purpose of increase of protection of investors of FFMS demands from management companies to specify accurately category of fund depending on the main directions of investment: fonds of stocks, funds of bonds, funds of the mixed investments, monetary funds, index funds, funds of funds, funds of real estate, mortgage funds, funds of venture investments and direct investment funds.

The choice of share fund, first of all, depends on the personal purposes of the investor. At the same time are considered: - the Estimated sum of investment

- the Estimated term of investment

- Risk to which the investor

is ready to go - the Income which expects to receive

the investor

Having considered these criteria, the shareholder will be able to receive the answer to the question And where to invest the capital? . However I want to warn you, dear readers: you do not pursue easy money. If the investment company does not show stable, good results within at least last year - find to yourself another.

Very much I hope that could help to understand to you, readers, what is mutual fund and what it is eaten with. Be not afraid to risk, but, if you please, do it intelligently. Progress to you!