💡 Investing in mutual funds: how to make money on mutual investment funds
Many people think about how to make their money work for them, rather than lying dead weight in the bank. One of the popular solutions for passive income is investing in mutual investment funds (MIFs). But what is behind this financial instrument, and how can it help achieve financial goals? Let's figure it out. A mutual investment fund (MIF) is a financial structure that combines the funds of several investors for joint investment in assets. The management company (MC) is responsible for the efficient distribution of capital in order to maximize profits, which are then divided between all participants. But how does this work in practice?
📉 A real-life example for understanding mutual funds
Imagine that three friends, John, Mike, and Emma, have $100 each and want to invest. Their uncle Bob has no money, but has a great plan to make it grow. He offers to take their money, promising to return it with interest. The friends agree, and Bob takes on the task of making money. To do this, he buys fruit at a wholesale market for $300, sells it at another market for $360, and in the evening returns $110 to each friend, keeping $30 for himself as a reward. In this story, the friends act as shareholders, trusting their funds to Bob, a management company that invests money in various assets and earns on the difference in value. For its services, the management company takes a commission, similar to how Bob kept part of the profit for himself.
💡 The main advantages of investing in mutual funds
Why are mutual funds so popular among beginner and experienced investors? Here are some key advantages:
- Diversification. Mutual funds offer access to various assets: stocks, bonds, real estate. This reduces risks, because assets are distributed between different sectors of the economy.
- Availability. You can start investing in mutual funds even with a small amount. There are funds with a minimum entry threshold of $100, which makes them accessible to most.
- Liquidity: Most mutual funds are open to buying and selling shares at any time, allowing you to quickly manage your investments.
- Transparency and security. The activities of mutual funds are strictly regulated by financial authorities, which eliminates the possibility of fraud.
📊 Types of mutual funds
- Open-ended mutual funds. You can buy or sell shares at any time. This type of mutual fund provides flexibility in investment management.
- Closed mutual funds. Mutual funds that operate for a specific period, such as a year or two. The share can only be sold at the end of this period.
- Interval mutual funds. Mutual funds that allow you to buy and sell shares only during certain time intervals.
🔎 How to invest in a mutual fund?
To start investing in a mutual fund, it is enough to open an account through a management company or bank. You will only need a passport and bank account details for withdrawing funds. Changes in the value of shares can be tracked online through the official websites of management companies.
🔥 Mutual fund yield and risks
The average annual return on mutual funds is about 20-25%, which is higher than the return on bank deposits. However, it is important to understand that the return on mutual funds is not guaranteed – both capital growth and losses are possible, depending on market conditions.
| Mutual Fund | Type | Return on investment for the year (%) | Rating |
|---|---|---|---|
| “April Capital – Second Tier Shares “ | Stock | 44.23% | ⭐⭐⭐⭐⭐ |
| “April Capital – Commodity Companies ” | Stock | 30.24% | ⭐⭐⭐⭐ |
| “Raiffeisen – Electric Power” | Stock | 23.36% | ⭐⭐⭐⭐ |
| “URALSIB Energy Perspective” | Stock | 23.31% | ⭐⭐⭐⭐ |
| “Sberbank – Electric Power Industry” | Stock | 21.00% | ⭐⭐⭐ |
💼 Examples of the best mutual funds
Here are a few funds that have performed well at the end of 2023, which will help you understand which options are most promising:
| Mutual Fund | Change in value | Growth over the period (%) |
|---|---|---|
| April Capital – Second Tier Stocks | 123.04 to 177.46 | 44.23% |
| April Capital – Commodity Stocks | 146.93 to 191.36 | 30.24% |
| Raiffeisen – Electric Power Industry | 4 383.35 to 5 407.21 | 23.36% |
| URALSIB Energy Perspective | 16 397.89 to 20 219.97 | 23.31% |
| Sberbank – Electric power industry | 851.60 to 1,030.45 | 21.00% |
These funds have performed well in recent months, but as always, it is important for investors to be mindful of the risks.
❗ What should be taken into account when choosing a mutual fund?
- Returns over the past years. It is important to look at the dynamics of returns over several years. This will help to better assess the prospects of the fund.
- Risk level. Choose a fund based on the level of risk you are comfortable with. Stocks may be more volatile, while bonds may be more stable.
- Commissions. Management companies charge fees for managing assets. This factor also affects the final profit.
- History of the fund and experience of the management company. The reliability of the management company and its experience in the market are key parameters for long-term success.
⁉️🤔 Popular questions and answers
- What is a mutual fund?
A mutual fund is a collective investment fund in which shareholders' funds are used to purchase assets for the purpose of generating profit.
- What types of mutual funds exist?
There are open, closed and interval mutual funds. In open mutual funds you can buy and sell shares at any time, in closed mutual funds – only after a certain period, and in interval mutual funds – in certain time windows.
- What is the yield of mutual funds?
The average yield of mutual funds fluctuates between 20-25% per year, but both losses and significantly larger profits are possible.
- What are the risks of investing in mutual funds?
Risks are associated with market fluctuations. Investments can both bring profit and lead to losses.
- How to choose a mutual fund?
When choosing a mutual fund, consider its profitability, risk level, fees and the reliability of the management company.
- How to buy mutual fund shares?
To purchase shares, you need to open an account through a management company or bank, having your passport and bank account details with you.
- How to sell mutual fund shares?
Shares can be sold by contacting a bank or a management company if the mutual fund is open.
💎 Results and conclusions
Investing in mutual funds is a good way to increase capital without having deep knowledge of financial markets. This tool offers access to a wide range of assets with a minimum entry threshold and high potential for profitability. However, as with any investment product, it is important to consider the risks and choose funds based on your financial goals. Mutual funds can be a great solution for those who want to passively increase capital without delving into daily market fluctuations, but it is worth remembering that successful investments require not only investments, but also a conscious approach to choosing instruments.