What is Mutual Fund? How they work?

In this post we'll discuss about what is mutual fund. Mutual fund is one of investment product. Maybe you often to hear the success stories of people who playing stocks. You want to be like that, but you are also afraid of the risk of losses that might occur if we invest in the stock market. Besides, you do not have time, knowledge, or stock exchange experience to trade. Because of your daily work as an employee at a company for example. Probably it will dampen your enthusiasm to 'play' in stocks. In fact, the investment yield offered quite a lot. So, what can we do?

Mutual fund is the answer. When investing in mutual fund, you could do 'stock investment' with more affordable capital. You do not need to bother watching the movement of stock in real time or do an evaluation on a regular basis. Because it's all done by the investment manager/company. Thus, what exactly mutual fund is?

The Mutual Funds are nothing more and nothing less than a set of financial instruments managed by a stockbroker or investment manager/company. These can be composed of stocks, bonds, term deposits and even other mutual funds. These financial instruments may be domestic or foreign. With all these elements there are many possible types of funds: national funds deposits, equity funds, mixed funds with stocks and bonds, foreign stock funds anywhere in the world or even mixed in different regions of the world.

Philosophically, mutual fund is an instrument for collecting funds from the public which are collectively used to be invested in investment instruments that are relatively difficult to access by ordinary people, such as stocks or bonds and even deposits. The funds are collected and screened by an investment company commonly known as the Investment Manager

When you invest in a mutual fund, you buy a certain number of shares of the fund. The shares have a value (share value), which changes daily and reflects the returns obtained. The stock broker company or investment manager will invest in some stocks from various company. Then they will divide the total investment into fragments or share unit. Let's say $1,000,000 and each share unit is $1,000. So total share unit would be $1,000,000 / $1,000 = 1000 units. This units will offered to people who wish to invest

For example, you can invest $ 1,000 in a fund share value. While at that day the share value was $ 100. Therefore, with $ 1,000, you purchased 10 shares. Suppose that after a few months the value has 10% increase. So it would be from $ 100 to $ 110. Thus, now your 10 shares worth $110 each, and the total money will have risen from $ 1,000 to $ 1,100. You already have $100 margin whether you wish to sell it out.

It's just a very simple example and simplified. But that is about the working system of mutual fund. How is it? Is it interested you or not? You can invest without having to bother to monitor its development. Mutual fund is highly suggested for those who don't have enough money of their budget for directly invest in stock floor. Or for those who afraid of risks of stock investing. Many people put this mutual fund in their personal financial planning. Especially the employees, who do not have much time for daily monitoring of stock price, etc.

Happy investing :)

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