what is stock mutual fund
Participation in mutual funds is a very convenient way of investing in the stock market, in which there is no need to worry about selecting stocks of particular companies what is stock mutual fund is a portfolio of stocks, bonds and (or) in cash, which the investment company manages from name of and on behalf of many investors. Shares of mutual funds offered to investors in value attributable to them of the net assets, sometimes with exchange rate premium. The net asset value of a mutual Fund (Net Asset Value NAV) is calculated daily and is the difference between the market value of all of the Fund's assets and liabilities per one share.
what is stock mutual fund, the ways in which the mutual Fund can achieve increase of net assets value. These methods are similar to the methods used by individual investors, to «make money» on operations with stocks, bonds and cash.
Firstly, a mutual Fund may receive dividends on the shares belonging to him of the companies. The mutual Fund can also put money in the Bank, which pays interest on the deposits, or purchase the bonds, bearing interest income. All of their different sources of income mutual Fund must distribute among its shareholders. As a rule, this occurs once or twice a year and bears the name of the distribution of income.
Secondly, at the end of the year, the Fund distributes among shareholders of the income as is derived through the sale of financial assets that have risen in price. This process is called the distribution of the profit from the sale of securities.
It is worth noting that the funds does not always receive profit. If the investment is not repaid, and the shares or bonds are sold at a lower price than buying, the Fund has capital loss. A «plus» of this situation is in the fact that the losses can accumulate in order to reduce taxable income in future periods. Naturally, the investor may revise its decision on participation in the Fund, especially if the Fund incurs losses at a time when there is a growth in the rest of the market.
what is stock mutual fund «Open» and «closed» investment funds
Investment funds may be «open» and «closed». Both of these use the funds of investors and are managed by professional managers who seek to diversify the Fund's portfolio with the help of one or other of the chosen investment strategy. The difference between «open» and «closed» investment funds consists in the fact, how the Fund structured from the point of view of property.
«Open» Fund (Open-End Funds) issue and buy back its shares on demand, in other words, when an investor invests money or redeems shares. As a rule, it happens every day, and total assets of the Fund or grow, or decreases as the inflow or outflow of funds. From the number of investors of the Fund depends on the number of shares: than more willing to invest in the Fund, the more shares it issues, and their number does not affect the price of each a separate paper.
«Closed» funds (Closed-End Funds) like public companies, produce a certain number of shares, which are placed in the course of the IPO and then traded on the exchange, as other shares. The value of the shares of the «closed» of the Fund is determined by the demand of investors for its shares, and not the total value of its assets.
«Beginners» it is not recommended to purchase the shares of «closed» funds " this kind of investment is quite complicated and requires a lot of experience. These funds are traded on the open market, shares of most of them for a number of reasons are sold at a «discount» in comparison with the value of the assets, which lie in their basis. The majority of investors try to place money in a «closed» funds, which receive significant profits and are trading at a big discount. In this calculation is the narrowing of the spread between the discount and amount of assets, which lie in the basis of the Fund. The same who is not able to evaluate the spread, recommend to place investments in the «open» funds.
what is stock mutual fund «load» and «no-load»
Funds «load» and «no-load» vary the fact that the funds «with» load (Load Funds) charged to investors Commission.
Among funds with activity» include:
funds that charge a one-time fee on the sale of shares (the size of the Commission - from 3% up to 6.25% of the total volume of investments);
funds that charge a one-time fee for the realization of the investor of his investment (usually the size of the Commission is 3% of the value of the asset at the point-of-sale).
In addition, the vast majority of funds «load» annually charge a fee for the so-called «Rule 12B-1». This collection used to cover expenditure on marketing and placement of the securities (the size of the Commission - from 0.25% to 0.75% of the annual value of the assets). I must say that the individual funds «no load» also charged the Commission on the «Rule 12B-1». Funds of «no-load» (No-Load Funds)that do not charge a fee on «Rule 12B-1», bear the name of «percent», or «these funds without load.»
