What are mutual funds

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Stock gambling can make almost anyone bankrupt or a millionaire. It is the desire to become a rich person that is a strong motivation to study the stock exchange. However, the larger the amount you want to receive, the greater the risks. Mutual funds are designed to mitigate this risk, but in this case, the profit will not be so cosmic. Consider in this article what mutual funds are and what they are.

A mutual fund or mutual fund is a portfolio of stocks selected and purchased by professional financiers for the investment of thousands of small investors. Thus, the investor reduces the risk, since his investments are distributed among a large number of different enterprises.

Investors (that is, you) are called shareholders, and the share of the fund that you acquire is called a share.

The exchange has a huge chance of going bust very quickly, which is why mutual funds are so popular. This is not a new invention: the first mutual fund was created in the United States in 1924. Trading on the stock exchange is something of a casino even for experienced investors. The exchange is quite chaotic and unpredictable, and few people generally understand the rules of the game. But those who understand become billionaires, like, for example, Warren Buffett.

Types of mutual funds​

There are two types of mutual funds: open-ended and closed-ended.

An open-ended mutual fund issues new shares (shares) and buys them back from shareholders. It also has the following features:

• The share price depends only on the fundamental indicators of the fund's assets.
• Shares are bought and sold only through the fund.
• An unlimited number of shares can be issued.
• The shares are traded at a price equal to the net asset value per share. Net asset is the net asset value of the fund divided by the number of shares (units).

A closed-end mutual fund issues a limited number of shares (units) and does not repurchase them from shareholders. It has the following features:

• The share price depends on the fundamental indicators of the fund's assets and the ratio of supply and demand in the market.
• The shares are traded on stock exchanges.
• A limited number of units are issued.
• Units can be traded at a price higher, lower or equal to the net asset value per share.

By asset type, mutual funds are categorized into equity funds, bond funds, balanced earnings, money market funds, and real estate funds.

Let's take a look at the four steps to investing in these funds.

Investing in mutual funds​

Choose a financial institution​

You can find a huge number of such institutions, because there are so many who want to manage your finances. If your funds are limited enough, you can try to invest on your own. In this case, you will need to study everything yourself and carefully monitor the placement and results of your investments.

If capital allows you, you can hire a financial advisor. Such people take a substantial amount for their work, plus interest on income.

Remember not to target funds that were effective a year or two ago. These metrics may not be relevant.

Define the risk​

Even in mutual funds there is some risk. In addition, they have varying degrees of risk, from low to high. On financial sites, you can find a risk assessment of each mutual fund. Typically, this is on a scale from 1 to 5. The greater the risk, the more likely the profit is.

You can put a small amount of money in an extremely risky fund, and the rest of your money in a less risky one.

Invest in different funds​

Diversification of investments is extremely important for successful investment. Experienced investors are advised to invest in assets of different classes. These can be equity funds of enterprises in your country or other countries, funds in specific industries (real estate, agriculture), bond funds. Thus, you will not be affected by fluctuations in the development of a particular industry. Remember the golden rule of business: "Don't put all your eggs in one basket." It has to do with risk. Share risks.

Don't try to predict the development of the market​

This is an incredibly difficult task, even for seasoned investors. Although you can study the market and its trends. Invest for the long term (more than five years) - this way, short-term ups and downs of the market will not have a big impact on you.

We wish you good luck!