Such an interesting financial instrument as a mutual investment fund (aka mutual funds) appeared on the territory of the former Soviet Union relatively recently. And it should be noted that among the general population, they are not well known. Therefore, the article will search for an answer to one question: what are mutual funds?
About their appearance
It should be noted that this tool is considered very young. He is not even a century old. The first UIFs appeared in the USA in 1924. In truth, before that there were many different offices and foundations that performed a similar function. But they worked individually with each client. Yes, and took even very small contributions. But it was not always possible to work effectively with small capitals. Because of this, large players raised the entry threshold. And small offices could not manage the funds that were entrusted to them, with maximum efficiency and profitability. However, there was no desire to lose investors who could boast of millions. Therefore, such a design as a unit investment fund (MIF) was developed. But first, a cool meeting awaited them. The exchange and economic crisis, the lack of a legislative base, as well as a lack of understanding on the part of potential customers of the principles of their functioning contributed to this a lot. And in addition to all this, a simple distrust of private investors. What is there to hide, the Americans then believed that then it was better to keep paper stocks in a box at home. Yes, all these stories about American families who suddenly found the hidden old grandfathers of Coca-Cola’s action are all not fiction. These funds were appreciated only after the Second World War. The real dawn came in the mid-1950s. Since then, both the amount of the funds themselves and the funds accumulated by them has increased not only in the United States itself, but throughout the world.
What is this mutual fund?
A mutual fund in the former Soviet Union appeared only in the nineties. They had the same problems as the Americans had at first. This is a crisis, and the absence of laws, and financial illiteracy, and mistrust on the part of the population. It is not surprising that they began to develop only in the two thousandths. During this time, they were able to survive the economic rise, accompanied by rapid growth of assets, and a number of crises. So what is this UIF? The main principle by which the work of mutual funds is built: fundraisers collect money and invest in various exchange instruments that can boast good returns. The peculiarity of mutual funds is that they do not have the status of a legal entity. They are created by asset management companies (AMCs) in order to form investment capital. Here, many confuse mutual funds with banks and insurance companies. Do not be fooled. Mutual investment funds are the living embodiment of trust management. This is quite natural. After all, AMCs, in fact, offer only two options for work. The first provides for the conclusion of an individual agreement and the formation of its own portfolio of securities, and the second offers accession to an existing mutual fund.
Device and profitability
Now let's look at how a mutual fund works in more detail. And start with the profit. It should be noted that investments in mutual funds do not guarantee profitability. The level of earned (or lost) funds depends on how well the asset management company invests. So, if she was mistaken on a large scale or market conditions changed dramatically, then you can get nothing at all. And on the other hand, not a single bank deposit in terms of profitability can compare with a successful investment in stocks or another profitable stock exchange instrument. For those who inattentively read, I specially emphasize once again - only a successful investment. How to choose and start working with AMC? In a simplified form, the performance of the activity, the rules of the unit investment fund are studied, a format for interaction is sought, an agreement is signed, and money is transferred. If we talk about profitability, it should be noted that there are quite a lot of different types of mutual funds. They are distinguished by where they send money and how they work. Here is the second point and we will consider first of all:
- Closed-end mutual funds. Their peculiarity is that it is possible to carry money into them only when they are formed. As soon as the process stops, it will not work to acquire a share. And you can’t repay it. It will be possible to return the money only upon expiration of the contract.
- Open mutual fund. In this case, the owned stake can be purchased or sold at any convenient day. When using its services, assets can both increase and decrease. It depends on the preferences of investors. But they carry out their work only with highly liquid assets, which negatively affects profitability.
- Interval mutual funds. They are an intermediate version of the two previous ones. The sale and purchase of units is permitted only for a limited period of time (the same interval).
Different investment options for reliability and profitability
The mutual fund market offers a large number of instruments on which funds specialize. These types of them exist today:
- Mutual funds shares. This is the most common and affordable option for private investors. He is the most risky representative among all such funds. But promises the highest yield.
- Mutual funds bonds. This is the most reliable tool for those who want to invest their money in mutual funds. He has a fixed income, which is usually small. Mostly money is directed to bonds. Although a small portion of the shares may be present.
- Index mutual funds. Experienced people can often hear opinions that they are the best option for starting an investment. This is due to the fact that the result of the management company’s work is visible when compared with the dynamics of the main indicator. They suggest investing in stock indices.
- Mixed mutual funds. They are a hybrid that specializes in stocks and bonds. Consist of both types of securities in significant quantities. Such funds have very flexible behavioral strategies. So, they can form their portfolios 100% of the shares in cases when the market is growing, and 100% during its fall.
- Mutual funds funds. These are such structures that allow you to invest money in other mutual funds. Thus, diversification of investments between different mutual funds is carried out.
Funds can have completely different returns. It can be 100% per year, and be at around 2-3%. It depends on the unit investment fund and the professionalism of AMC. That is considered in general terms, what are mutual funds.
Work rules
Investing in a mutual fund is not difficult. The minimum threshold for this is not high and can even amount to tens of rubles (although in this case, you should think about the success and effectiveness of such investments). But it should be remembered that in order to obtain tangible income and investments must comply. It should be understood that investments in mutual funds can be considered at least in the role of medium-term investments. Or even for a few years. It is also highly advisable to set yourself an investment goal. It should reflect the percentage yield that a person wants to receive for a certain period of time. Remember that everyone decides whether to invest money and where. If you are in doubt, then perhaps the following points can convince:
- Capital Management. By transferring money, a person trusts their professionals. Not everyone has the strength to enter the bond or stock market and invest them in such a way as to earn income.
- Flexibility in relation to shares. In most cases, they can be bought and sold at any time.
- Low entry threshold.
- The object of interaction. Units can be used as collateral and be inherited.
- Long term investments. Investments in shares are best perceived as investments for a long period of time.
- Diversification of investments. Mutual Funds are a good way to make your portfolio more diverse.
When choosing an investment object, it is necessary to study its indicators for a certain time well (preferably 5-10 years, if not with the fund, then with the management company), among which the current profitability plays a special role. It is necessary to consider in more detail investments in mutual funds. The pros and cons of this decision deserve closer attention. Well, let's get started.
About the pros
They will be best represented as a list:
- Professional management. Mutual funds are managed not by one person, but by a whole team of professionals. Each of them has a specialized education in their field and extensive experience. They manage the portfolio, constantly research the market, look for the best investment opportunities that can give the highest return, while maintaining an acceptable level of risk. It is difficult to cope with such a volume of work alone. And having a small capital, even if it’s worth several hundred thousand rubles, earning golden mountains and recouping the time spent is not a fact that will come out.
- Low cost management. Usually mutual funds buy / sell tens and hundreds of thousands of securities at a time. Due to the turnover they have set a preferential tariff in terms of commission costs. It can be many times lower than what private investors who have several lots pay. Due to this, the annual costs are only a miserable couple of percent.
- Diversification. Very often, private investors, when acquiring certain assets, forget about diversification. There is also a situation where the portfolio consists of up to a dozen securities that cover 3-4 industries. This is a very risky investment. If you want to diversify, you can meet with such a problem as the need for big money and the imperfection of management.
- Great choices. There are various mutual funds that differ in risk and profitability. You can choose for yourself exactly what corresponds to financial capabilities, investment horizon, goals, possible levels of profit and loss.
On state control
This plus stands apart. The activities of mutual funds are constantly monitored by authorized state structures. Thanks to this, the funds provide all their financial indicators that cover their activities, such as profit, loss, operating expenses and the like. Thanks to this, it is not difficult to obtain comprehensive data on the situation with each individual structure. The fact of control by the state plays a very large role. It is no secret that in the world there are many people who would not mind making money. And given the financial illiteracy that blooms wildly in the vastness of our country, it is highly likely that someone unclean will take advantage of the situation. But this will undermine the credibility of the system even more, and despite the fact that it is already not in the best condition. Therefore, you have to keep abreast and very tightly control the situation.
About cons
For all its advantages, mutual funds have disadvantages. These include:
- There are no guarantees of profitability in the future. Even if the fund has consistently shown excellent results in the past few years, in the future it may be in the red.
- The state strictly regulates the activities of mutual funds. Of particular note is the ban on operations that are not provided for in the charter. For example, if the index fund says that it is forbidden to get rid of falling assets and transfer them to money, then you will have to suffer losses. By the way, that’s why it is still necessary to monitor the situation, in which case to give an order on the transfer of assets to money.
- Additional costs that the shareholder has to bear. These include entry and exit fees, so-called allowances and discounts. Although if ownership is carried out for several years, then usually nothing is lost during the sale. Additionally, do not forget about management fees.
- Taxes. How can you forget about this? Profit is charged at 13% at the time of sale.
The activity of the domestic market
Let's look at how things are in our country. Despite the turbulent recent years, we can say that the situation is very good. Several random structures may be considered:
- Mutual Fund “Peter Stolypin”. It is one of the oldest representatives in our country. It was founded already in the last millennium, and more precisely, in 1997. It positions itself as a fund for investors who want to get the maximum profit and are ready to accept the risk associated with it. Over the past three years, he has shown a profit of 57%. During the same time, the Petr Stolypin mutual fund increased the value of its net assets by 220%. Data shown at end of 2018.
- Mutual Fund "Ilya Muromets". This is a fund created under the auspices of Sberbank. Over the past three years, he has shown a profitability of 27%. The value of net assets increased by 188%. Mutual Fund Ilya Muromets specializes in working with bonds of the municipal, corporate and state sectors.
In general, if there is no significant experience and desire to take risks, then you can pay attention to investments in mutual funds of Sberbank. Their reviews are mostly positive, profitability also deserves attention. Although, of course, this is far from the only bank that offers such conditions. Perhaps, it would be preferable for someone to invest in mutual funds of VTB or another financial institution. If there is a desire to take risks and opportunities for this, then why not take advantage? Moreover, the yield on the main proposals, if not higher, is at least equal to funds from deposits.
Conclusion
So it was examined what investment in mutual funds, conditions and profitability are. Having this, albeit small, but a set of knowledge, you can already make the very first serious investment decisions in life. When the choice is determined, it will be useful to remember one old proverb: "Victory loves preparation." She is already more than two thousand years old, she came back from the times of Ancient Rome. And to this day, it has not lost its relevance. Therefore, if you want to invest your own money in the fund, you need to spend at least several tens of minutes to study it closely. A few hours would be better. To find out how things are going not only with him, but also with the asset management company. After all, you can be tempted by the good performance that a single mutual fund has, the cost of a share of which is growing by leaps and bounds. But all the other projects will be ... ahem ... in a sad state. And that says a lot about the level of people who deal with them. It must be remembered that there is no guarantee of income. Even more so, there is a situation in the market where most funds cannot boast of a substantial increase in savings. After all, first of all, we stand on guard of our wealth. And it depends on us most of all whether it will grow or is destined to lose it due to laziness, illiteracy, impatience and stupidity. Let everyone remember that he himself is the smith of his own happiness. And on these lofty notes, you can thank for your attention and wish readers good luck and wisdom in money matters.