What are Mutual Funds?
Mutual Funds are pooled investment vehicles, with the goal of bringing profits to investors. Investors (usually in the thousands) pool their money and appoint a professional organization called a Fund Management Company to manage and make investments on their behalf.
Because the investments in the funds do not have a fixed term, investors can enter and withdraw capital from the funds at any time, hence the term “open-ended” mutual funds.
When investing in mutual funds, investment advisors can help you invest in the securities market (i.e., stocks or bonds), or other investable assets. Investment advisors will perform due diligence in screening, doing fundamental analyses on companies, and evaluating the stocks/bonds’ mid-long term prices
Who are mutual funds suitable for?
- Investors who are busy and do not have time to follow the market
- Investors who do not have enough in-depth knowledge about financial investment
- Investors who need to diversify investment channels with small capital and low cost.
- Investors who want to invest in medium and long-term while do not have enough resources to analyze securities on a daily basis.
Why invest in Mutual Funds?
To answer the question of “Why invest in Mutual Funds”, investors can see the following benefits
- Limited amount of capital required: With only a small amount of money, investors can get exposure to various types of markets, i.e., stocks, bonds, real-estate Meanwhile, direct investments in these types of assets may require a much greater amount of capital
- Flexibility: Your portfolios can be rebalanced in a timely manner according to the movements of the market. This is extra beneficial for investors who do not have the time to continuously monitor the market.
- Professionality and transparency: Mutual Funds are managed by teams of experts with years of experience while being supervised by custodian banks. Therefore, all information regarding the investing process will be thoroughly documented. For instance, funds under the management of AFM put out periodical reports on their website, making it convenient for investors to monitor the performance of the funds.
- Portfolio diversification Asset management companies tend to diversify their portfolios by investing in various asset classes instead of just one, i.e., stocks, government bonds, corporate bonds, CDs (certificate of deposit), with the aim of maximizing returns, bringing stable streams of income, while minimizing risks for the investors.
- Increased returns: Fund management companies have the common goals of protecting the interest of the clients, and increasing the value of their portfolios .
- Risk management: “Risk” refers to the fluctuation in prices of securities Fund management companies have the expertise, as well as the resources needed to diversify their portfolios to hedge against the price fluctuations of individual stocks. This is an edge that fund management companies have against individual investors.
- High Liquidity: Investors can redeem their shares in part or in full at any given time, and the mutual funds have to comply.
- Time-saving: Instead of doing the market research yourselves, you can use that time to work in your field of expertise.