Thursday, 7 June 2012

Know your funds before you go ahead and invest

If you are an investor, then irrespective of your type there is always a mutual fund which will fit your style of trading. It has been evaluated that there are more than 10,000 mutual funds in North America which means that there are more number of mutual funds as compared to stocks. When you are investing in mutual funds, ways to fund care is not difficult. It is pertinent that you should understand that there are different kinds of risks and rewards associated with each mutual fund.  By a general rule, the higher is your potential return from the investment, the higher risk it involves.

You should remember that there is risk involved with all funds at some level, though there are some funds which are less risky as compared to others. It is never possible for you to diversify away all risks. Each kind of fund has investment objectives which are predetermined and these are custom made to the assets of the fund, the regions of investment and the strategies of investment. There are three varieties of mutual funds at the fundamental level. These are equity funds, fixed-income funds and money market fund.

 All kinds of mutual funds are just different variations of these classes of asset. For instance, the equity funds that invest in companies that are fast growing are called growth funds; the equity funds which only invest in companies of the same sector or region are referred to as specialty funds. Here are two common and safest funds for you to evaluate.

  • Money market fund – The money market is made up of debt instruments which are short term, mainly Treasury bills. You can deposit your money here safely. Although you won’t receive high returns, you don’t need to worry about losing your principal.  A typical return on a money market fund is almost double the amount that you would earn in a regular savings account and a little less than what you would earn on an average certificate of deposit (CD).

  • Bonds/income funds – Income funds do exactly as their name suggests, they provide you with current income on a regular basis. When talking about mutual funds, the terms “fixed-income”, “bond” and “income” all carry the same meaning. These terms represent funds which invest primarily in the government debt and also corporate debt. While the fund holdings may receive appreciation in value, the main objective of these funds is to provide a fixed flow of cash, once you have invested in them. Most of the people who invest in such funds are either retirees or conservative investors. Bonds funds are more probable of paying you higher returns as compared to certificates of deposit and money market investments. However it is not that bonds funds are devoid of risk. The variety o bond funds is quite a lot, hence they can vary quite dramatically depending upon where they are invested.

Thus you can choose from these investments to keep the risk low.

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1 comment :

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