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All you need to know about MUTUAL Funds

What is a Mutual Fund?

Mutual funds are professionally managed investment schemes that give individuals an easy access to global financial markets.

The investment objectives and scope of different funds varies; some aim to provide steady returns by investing in bonds and cash, whilst others aim to achieve high capital growth by investing in stock markets or particular sectors, such as technology.

What are the Benefits?

A mutual fund offers a number of benefits over investing in individual securities, they include:
  • Professional management: mutual funds offer investors access to full time, professional money managers who have the expertise, experience and resources to actively buy, sell, and monitor investments.
  • Affordability: initial investments in most funds are reasonable, and the requirement for additional investments is usually even lower.
  • Diversification: an investment in a mutual fund generally includes a number of different securities. For example, diversified equity fund portfolios usually hold stocks representing different companies, different industries and sometimes even different nations. Diversification can help reduce the financial risk. If one investment decreases in value, another Investment in the portfolio may increase.
  • Flexibility: many mutual funds are part of a "family of funds," which means that as your investment objectives change, you can exchange shares from one fund to another in the same family at little or no cost.
  • Liquidity: it's easy to withdraw some or all of the money you’ve invested. Typically, you can get your money within one week.
  • Easy: you decide which funds to invest in and then professional managers take care of all the day-to-day decisions, so you don't have to watch the markets constantly.
  • Risk reduction: mutual funds generally invest in different set of securities, often covering several different markets at once. This gives much more diversification than you can generally achieve on your own.

What are the different types of mutual funds?

A vast array of mutual funds are available, but they generally fall into 4 basic types defined by the class of assets they hold:
  • Equity funds: these funds invest in common stocks of public companies, generally with capital appreciation as the primary objective.
  • Bond funds: these funds invest in corporate, government and municipal bonds, generally with current income as the primary objective.
  • Balanced funds: balanced funds invest in a combination of equity and fixed income assets including stocks, bonds and money market instruments, which can vary proportionally over time or remain, with current income and capital growth as an objective.
  • Money market funds: invest in certificates of deposit, commercial paper and other highly liquid securities, generally with preservation of principal, liquidity and current income as an objective.
There is also a range of options related with the investment focus, designed to meet investor’s unique objectives, such as:
  • Global funds:  invest anywhere in the world.
  • Country or regional funds: invest in one specific country or region.
  • Sector funds:  invest only in companies of one specific industry.

How Mutual Funds Can Earn You Money?

  • Increased Net Asset Value (NAV): if the market value of a fund's portfolio increases after deduction of expenses and liabilities, then the value (NAV) of the fund increases. A higher NAV reflects a higher value of your investment. Of course, can occur also the opposite situation.
  • Dividend distributions: a mutual fund may earn income through dividends and interest on the securities in its portfolio. It then pays shareholders nearly all of the income (minus expenses) it has earned in the form of dividends.
  • Capital gain distributions: when a mutual fund sells a security in its portfolio that has increased in price, it has a capital gain. At the end of the year, the fund distributes these capital gains (minus any capital losses) to investors. Mutual funds will usually give you a choice regarding dividend and capital gain distributions: they can send you a check or you can have your distributions reinvested to buy more shares (often without paying an additional sales load).


Mutual funds - the easiest way to diversify: most people simply don't have enough money to invest in a broad array of individual equities, fixed-income and other assets, much less the time and energy to research and monitor them. For those investors, mutual funds may represent the most sensible option.

Mutual funds are diversified by definition: a single fund can hold securities from hundreds of issuers and mutual funds provide an easy and cost-effective way to diversify within asset classes, across asset classes and around the globe.

Risk Disclosure

Investment involves risks and the price of any investment products may fall as well as rise, and may fluctuate dramatically, and may become valueless. It is as likely those losses will be incurred rather than profit made as a result of investment. Past performance is no guide to its future performance.

Before making any investment decision, investors should consider and evaluate their own investment objective, risk tolerance, investment experience, expected return, overall needs, financial situation and other criteria.

Investors should understand the risk and nature of the transaction, and read carefully the terms and conditions in the related offering documents, particularly the risk factors, before investing so that you understand the nature of all of the risks, and if you have any question on the content of this document, you should seek other independent and professional advice.

For more information about Mutual Funds, please contact BNU Direct: 2833 5533.