Investing in mutual funds: profitability, pros and cons. Mutual Fund Rules

2024 Author: Howard Calhoun | [email protected]. Last modified: 2023-12-17 10:16

Such an interesting financial instrument as a mutual investment fund (aka UIF) appeared relatively recently on the territory of the former Soviet Union. And it should be noted that they are not well known among the general population. Therefore, within the framework of the article, a search will be made for the answer to one question: what are mutual funds?

About their appearance

It should be noted that this instrument is considered to be very young. He is not yet a century old. The first mutual funds appeared in the USA in 1924. To tell the truth, before that there were many different offices and funds that performed a similar function. But they worked individually with each client. Yes, and accepted even very small contributions. But it was not always possible to work effectively with small capitals. Because of this, major players raised the entry threshold. And small offices could not manage the funds that were entrusted to them with maximum efficiency and profitability. At the same time, there was no desire to lose investors who could boast of millions. Therefore, it was developedsuch a structure as a mutual investment fund (PIF). But first, a cool welcome awaited them. The exchange and economic crisis, the lack of a legislative framework, as well as a lack of understanding on the part of potential clients of the principles of their functioning contributed a lot to this. And in addition to all this, a simple distrust of private investors. What is there to hide, the Americans then believed that it was better to store paper shares in a box at home then. Yes, yes, all these stories about American families who suddenly found hidden old grandfather shares of Coca-Cola - all this is not fiction. These funds were appreciated only after the Second World War. The real dawn came in the mid-1950s. Since then, the number of funds themselves, as well as the funds they have accumulated, has increased not only in the US itself, but throughout the world.

What is this mutual fund?

The mutual investment fund in the expanses of the former Soviet Union appeared only in the nineties. They had the same problems that the Americans had at first. This is a crisis, and the absence of laws, and financial illiteracy, and distrust on the part of the population. It is not surprising that they began to develop only in the 2000s. During this time, they were able to survive both the economic take-off, accompanied by a rapid growth in assets, and a number of crises. So what is this PIF? The main principle on which the work of mutual funds is built is that the money of shareholders is collected and invested in various exchange instruments that canbrag about good returns. The peculiarity of mutual funds is that they do not have the status of a legal entity. They are created by asset management companies (AMC) in order to form investment capital. Here, many confuse mutual funds with banks and insurance companies. Don't be misled. Mutual funds are the living embodiment of trust management. This is quite natural. After all, AMC, in fact, offer only two options for work. The first one provides for the conclusion of an individual agreement and the formation of one's own portfolio of securities, and the second one offers accession to an existing mutual fund.

Design and profitability

Now let's take a closer look at how a mutual fund works. And let's start with profit. It should be noted that investments in mutual funds do not guarantee profitability. The level of money earned (or lost) depends on how successful the asset management company is in investing money. So, if she made a big mistake or market conditions changed catastrophically, then you can get nothing at all. And on the other hand, not a single bank deposit in terms of profitability can be compared with a successful investment in shares or other profitable exchange instrument. For those who read inattentively, I specifically emphasize once again - only a good investment. How to choose and start working with AMC? In a simplified form, the performance of the activity, the rules of the mutual investment fund are studied, the format of interaction is being searched, the contract is signed, andfunds are transferred. If we talk about profitability, it should be noted that there are quite a few different types of mutual funds. They are distinguished by where the money goes and how they work. Here is the second point we will consider first of all:

1. Closed-end mutual funds. Their peculiarity is that money can be attributed to them only when they are formed. As soon as the process stops, it will no longer be possible to purchase a share. And you can't redeem it. It will be possible to return the money only when the contract expires.
2. Open mutual fund. In this case, the owned share can be purchased or sold at any convenient day. When using its services, assets can both increase and decrease. It depends on the preferences of investors. But they carry out their work only with highly liquid assets, which negatively affects profitability.
3. Interval mutual funds. They are an intermediate version of the previous two. Selling and buying shares is only allowed for a limited period of time (aka interval).

Different investment options for reliability and profitability

The mutual fund market offers a large number of instruments in which funds specialize. Here are their types exist today:

1. Share mutual funds. This is the most common and affordable option for private investors. He is also the most risky representative among all such funds. But it promises the highest return.
2. Mutual investment funds of bonds. It is the most reliable tool for those who wantinvest your money in mutual funds. It has a fixed income, which is usually small. Most of the money goes into bonds. Although there may be a small part of the shares.
3. Index mutual funds. You can often hear opinions from experienced people that they are the best option for starting an investment. This is due to the fact that the result of the management company's work is visible when compared with the dynamics of the main indicator. They suggest investing money in stock indices.
4. Mixed mutual funds. They are a hybrid that specializes in stocks and bonds. Consist of both types of securities in a significant amount. Such funds have very flexible behavior strategies. So, they can build their portfolios 100% stocks when the market is rising, and 100% when it is falling.
5. Mutual funds of funds. These are structures that allow you to invest money in other mutual funds. Thus, diversification of investments between different mutual funds is carried out.

Funds can have completely different returns. It can be 100% per year, and be at around 2-3%. It depends on the mutual investment fund and the professionalism of the AMC. So, in general terms, what mutual funds are.

Operating rules

Investing in a mutual fund is not difficult. The minimum threshold for this is not high and can even be tens of rubles (however, in this case, you should think about the success and effectiveness of such investments). Butit should be remembered that in order to receive tangible income and investments must correspond. It should be understood that investments in mutual funds can be considered at least as medium-term investments. Or even for several years. It is also very desirable to set yourself an investment goal. It should display the yield, expressed as a percentage, that a person wants to receive for a certain period of time. Remember that everyone independently decides whether to invest money and where. If doubts torment, then perhaps the following theses will be able to convince:

1. Money management. When transferring money, a person trusts them to professionals. Not everyone is able to enter the bond or stock market and invest them in such a way as to generate income.
2. Flexibility in relation to shares. In most cases, they can be bought and sold at any time.
3. Low entry threshold.
4. Interaction object. Shares can be used as collateral and can be inherited.
5. Long-term investment. Investments in units are better understood as an investment for a long period of time.
6. Diversification of investments. Mutual funds are a good way to diversify your portfolio.

When choosing an investment object, it is necessary to carefully study its performance over a certain period of time (preferably 5-10 years, if not for the fund, then for the management company), among which the current profitability plays a special place. It is necessary to consider in more detail investments in mutual funds. The pros and cons of this solution deserve closer attention. Well, let's get started.

About the pros

It would be best to show them as a list:

1. Professional management. Mutual funds are managed not by one person, but by a whole team of professionals. Each of them has a specialized education in their field and extensive work experience. They manage a portfolio, constantly research the market, looking for the best investment opportunities that can give the highest return, while maintaining an acceptable level of risk. It is difficult to cope with such a volume of work alone. Yes, and having a small capital, even if it is several hundred thousand rubles, to earn mountains of gold and recoup the time spent is not a fact of what will come out.
2. Low management cost. Usually, mutual funds buy/sell tens and hundreds of thousands of securities at a time. Thanks to their turnover, they have a preferential rate in terms of commission costs. It can be several times lower than what private investors who have several lots pay. Thanks to this, the annual cost is only a measly couple of percent.
3. Diversification. Very often, private investors, acquiring certain assets, forget about diversification. There is also a situation where the portfolio consists of up to a dozen securities that cover 3-4 industries. This is a very risky investment. If you want to diversify, you can meet such a problem as the need for big money and the imperfection of management.
4. Great choices. There are various mutual funds that differ in risk and return. You can choose for yourself exactly what corresponds to financialopportunities, investment horizon, goals, possible levels of profit and loss.

About state control

This plus stands alone. The activities of mutual funds are constantly monitored by authorized state structures. Thanks to this, the funds provide all their financial indicators that cover their activities, such as: profit, loss, operating expenses, and the like. Thanks to this, it is not difficult to obtain comprehensive data on the situation with each individual structure. The fact of state control plays a very important role. It's no secret that there are many people in the world who would not mind making money. And given the financial illiteracy that blooms wildly in the vastness of our country, there is a high probability that someone dishonest will take advantage of the situation. But this will undermine the credibility of the system even more, and despite the fact that it is not in the best condition right now. Therefore, you have to keep your finger on the pulse and control the situation very tightly.

About cons

For all their advantages, mutual funds also have disadvantages. These include:

1. No guarantee of future returns. Even if the fund has consistently shown excellent results over the past few years, it may end up in the red in the future.
2. The state strictly regulates the activities of mutual funds. Particularly noteworthy is the ban on conducting operations that are not provided for in the charter. For example, if an index fund states that it is forbidden to get rid offalling assets and converting them into money, you will have to suffer losses. By the way, this is why you still need to monitor the situation in order to give an order to transfer assets into money in this case.
3. Additional costs that the shareholder has to bear. These include entry and exit fees, so-called surcharges and discounts. Although if the ownership is carried out for several years, then usually nothing is lost during the sale. Additionally, do not forget about the management fee.
4. Taxes. How can you forget about it? Profits are charged 13% at the time of sale.

Domestic market activities

Let's look at how things are in our country. Despite the turbulent recent years, we can say that the situation is quite good. Several random structures can be considered:

1. PIF "Pyotr Stolypin". It is one of the oldest representatives in our country. It was founded already in the last millennium, and more precisely, in 1997. It positions itself as a fund for investors who want to maximize returns and are willing to take the risk that comes with it. Over the past three years, he showed a profit of 57%. During the same time PIF "Pyotr Stolypin" has increased the value of its net assets by 220%. Data are for the end of 2018.
2. PIF "Ilya Muromets". This is a fund created under the auspices of Sberbank. Over the past three years, it has shown a profitability of 27%. The value of net assets at the same time increased by 188%. Mutual Fund "Ilya Muromets" specializes in working with bonds of the municipal, corporate and public sectors.

In general, if there is no significant experience and desire to take risks, then you can pay attention to investing in mutual funds of Sberbank. Their reviews are mostly positive, profitability also deserves attention. Although, of course, this is far from the only bank that offers such conditions. Perhaps someone will be nicer to investing in mutual funds of VTB or another financial and credit institution. If there is a desire to take risks and opportunities for this, then why not take advantage of it? Moreover, the yield on the main offers, if not higher, then at least equal to the funds from deposits.

Conclusion

Here we have considered what investment in mutual funds, conditions and profitability are. Having such, albeit small, but a set of knowledge, it is already possible to make the very first serious investment decisions in life. When the choice is being made, it will be helpful to remember one old adage: "Winning loves preparation." She is already more than two thousand years old, she came from the times of Ancient Rome. And to this day, it has not lost its relevance. Therefore, if you want to invest your own money in the fund, you need to spend at least a few tens of minutes studying it closely. A few hours would be better. To find out how things are going not only with him, but also with the asset management company. After all, you can covet the good performance that one mutual fund has, the value of a share of which is growing by leaps and bounds. But all other projects will be … ahem … in a sad state. And this says a lot about the level of people who are engaged inthem. It must be remembered that there is no guarantee of income. Even more so, there is a situation in the market where most funds cannot boast of a significant increase in savings. After all, in the first place, we are the guardians of our we alth. And it depends on us most of all whether it will grow or be destined to lose it due to laziness, illiteracy, impatience and stupidity. Let everyone remember that he himself is the blacksmith of his own happiness. And on these lofty notes, we can thank you for your attention and wish the readers good luck and wisdom in money matters.