Mutual Fund are money or fund of many people or investors put together for the purpose of investing it. The funds are then managed by a group of managers and are invested to earn profits.
These group of managers are referred to as "investment companies" or "registered investment companies." These companies are normally banks and insurance companies. They have professional fund managers that invest the funds in different financial instruments such as money market securities, bonds and equities.
These financial instruments were normally available to bigger investors. Only bigger investors can afford to invest in it since it requires a bigger minimum amount of investment. But now, even low income individuals can readily invest since many investment companies have made investment plans to suit their needs.
Like, for example, before, you can only invest in mutual fund when you have one hundred thousand pesos (P100,000.00) or more. But now, you can invest in as low as ten thousand pesos (P10,000.00) and even one thousand pesos (P1,000.00.) click here to find out
Investing in mutual fund is better than keeping your money in a Time Deposit in banks because in a Time Deposit, your interest rate depends on the amount you place. The bigger the amount, the higher your interest rate.
However, in Mutual Fund, when you invested a smaller amount, you will receive the same interest rate with those people who invested bigger amounts. Your profit will depend on the amount you invested.
Investments in mutual funds are represented in number of units. When you invest, you are buying shares of funds per unit. This is what we call NAVPU or Net Asset Value Per Unit. Investors can buy or sell shares of funds at any time.
Generally, mutual funds has three categories
1. Fixed Income Fund - funds are invested in government and corporate securities that provide a fixed return and are usually low risk. Generally they are invested in bonds. Bonds are instruments of indebtedness or a written promise to an investor to pay him a certain amount in a specific period of time. So that if ever the company will be at a loss or closes down, you will surely get back your investment as well as the profit.
2. Balanced Fund - half of the funds are invested into stock market and half into bonds. It has moderate risk and moderate return
3. Equity Fund - funds are invested in stock market. It has high risk and high return.
In mutual fund, someone else manages your fund and so, you don't have to worry about diversifying individual investments yourself or doing your own record keeping or finding where could you earn more. All you have to do is to just buy them and forget about them.
Managing funds is a full-time job of these investment managers. You can be assured of their competence and diligent performance. They are the one who make research and studies the market condition. Their compensation also depends on how well the fund performs.
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