Mutual funds are most common type of investment in North America. With explosion of the number of mutual funds, funds investor in the 90s came a variety of specialty funds. Instead of using the capital to hire employees, purchase materials so on the investment fund purchase a diversified list of stocks, or bonds, or both for their income potential.
They have been complemented by funds specializing in
- Certain industries;
- Certain commodities;
- Certain marketplace;
- Developed exclusively to real estate investment or mortgages;
- Futures on stock exchanges.
You can find funds for every objective, taste and interest. The number of funds is grooving daily.
The main characteristic of the mutual fund is that the price of the mutual fund’s shares has at all time define relationship to the net asset value of the mutual fund’s portfolio. The mutual fund continuously sells its treasury shares. The result is that the number of shares and investment capital are constantly changing.
A mutual fund has a simple capital structure. It has a nominal number of deferred shares (common shares), which are held by the sponsor of the company; and a number of shares, which are offered for sale to the public.
Mutual fund shares can be sold to the public by
- Investment dealers and brokers;
- Trust companies.
There are usually five ways to buy mutual funds:
- Cash investment – you can buy a number of mutual fund shares. Most funds offer a discount on the loading fee if the investment is usually more 25000$
- Reinvestment of dividend – the shareholders can reinvest their dividend
- Non-contractual saving plan – an investor can open a small account and then add monthly or quarterly amounts.
- Contractual plan – specified amount each month over a specific period.
- Withdrawal plan – one time investing in a fund and then withdraws dividends and some principal amount at regular intervals.
An investment fund does not guarantee a capital growth. The value of shares (units) is usually calculated by taking the total market value of all investments divided by number of units (shares). So, if a mutual fund succeeds on the market their shareholders are wealthy otherwise they can loose not only dividends but an invested capital as well.