Mutual Funds: Investing For the Future
The term Investment refers to money or financial resources coming into a person’s or institution’s possession with the intention of utilizing it for a specific purpose. To invest properly means to set aside money with the intention of a profit/loss in the near or distant future. Simply stated, to invest implies owning an object or an asset with the aim of making money from the investment or simply the appreciation of the investment which is the increase in the value of that object over a designated period of time. In order to make money from investments, one has to use the money wisely to earn high returns.
There are two basic types of investments: Bond and equities. Bond investments are usually in fixed interest obligations such as U.S. treasury bills and corporate bonds, and are intended to be repaid when they mature. A typical example is that of a person who purchases a bond that matures in five years at an interest rate determined at purchase, with the option to purchase another five years of fixed payments at a fixed interest rate at purchase, and so on. The same situation could be applied to equities. An equity mutual fund may be bought in order to own a portion of the assets in a given business or industry, and once mature may be sold to generate a profit.
One can diversify his portfolio by investing in both bonds and equities and also in stocks. Diversification of portfolios allows investors to gain exposure to different market sectors thereby enhancing portfolio returns. This type of investment option is also used by mutual funds. Some mutual funds specialize in stocks while others may invest in both stocks and bonds or only in equities.
Different people have various types of financial goals. Some want a complete financial return from their savings while others want to make money within a certain time frame. It is important for investors to set financial goals before buying any investment type. Various types of mutual funds are available that suit various types of investment needs. They are ideal for long term investments since they offer guaranteed returns.
A good mutual fund prospectus should contain information about the company it is invested in, its historical performance, risks involved, and its overall value as reflected in price. One can chose the index funds according to his investment objectives. The best suited funds are those that provide higher returns with relatively lower risk. Mutual funds may not be the best way to save for retirement, but are ideal for initial stock investments and also for growth of a portfolio as a whole.
One can buy stock directly or via a brokerage firm. The transactions in stocks, especially mutual funds, involve much higher costs than trading in securities through banks. In order to obtain maximum returns from the investment management of a portfolio, it is essential to follow an advisor’s advice on a regular basis. A good investment banking firm has professional registered investment advisors who help the investor in making investment decisions. They can help the investor diversify his portfolio by including low risk high return securities in his investment portfolio.