Money market mutual funds in Russia

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

One of the safest mutual funds are money market resources (financial intermediaries), although it all depends on the term of investment. Those who have invested in them are insured against losing the bulk of their deposits, but, on the other hand, the income of depositors turns out to be so insignificant that inflation eats them up over time. So they will be necessary for those who want to contribute cash to short-term programs. It is these financial intermediaries that will be discussed.

Defining Mutual Funds

Mutual funds are cash injections that are formed by pooling the funds of a large number of depositors. Often, initial contributions in some of them range from $300-500, and after opening an account, subsequent investments can be in the form of any amount.

Regardless of the investment strategy and goals, brokerage houses, investment companies act as founders of a fund or a group of funds. For the convenience of the founders, their funds are easily transferred from the securities of one company to the securities of another without any commissions.

Mutual funds specialize in investments in hard metals, money market instruments, real estate. They are a packagebonds, stocks, cash, managed by an investment company on behalf of and at the command of many investors. The combined assets held by a mutual fund are called its portfolio. Each share of the portfolio is the investor's proportional ownership of the fund's assets, as well as a portion of the income generated from these assets.

Working principle

All mutual funds operate in much the same way. They are formed by an investment company that sells their shares to investors, after which it invests the funds received in securities portfolios. By pooling the funds of depositors into a portfolio, the head of the company can diversify investments by purchasing bonds and shares in the fund.

The types of selected instruments set the purpose of investment. For example, if the goal of an equity investment firm is to announce capital gains, then the lion's share of the funds goes into growth stocks. If the purpose of the bond fund is to pay coupon income, which is not taxed, then the funds are invested in municipal bonds. At the same time, the investment company for bonds is formed by issuing them in order to diversify the portfolio and reduce the risk of default on individual bonds.

Investors are paid dividends, which are formed from income from securities that make up the bulk of the portfolio. A client who invested $1,000 will receive the same percentage return as someone who invested $100,000. The difference will be thatthe income of the second contributor will be 100 times greater than that of the first (according to the proportion of their shares in the fund).

When the value of the securities in the portfolio changes, the net asset value of the financial intermediary changes accordingly. Price fluctuations are affected by the risks inherent in many types of securities: political, economic, market.

Views

Mutual funds are of several types, ie. contributors invest in bonds, stocks, hybrid, commodity investment companies and money market mutual funds.

Considering all types in detail, we can say that these are mutual investments that sell their own shares and invest the funds received in money market securities. It is these companies of all the rest that maintain the value of their securities at a constant level. Often the price and estimated value of a share is $1. Keeping the price at the same level allows the fact that short-term losses from the sale of securities, any expenses of the investment company are deducted from the income received from investments. This result is most easily achieved by those funds that invest borrowed funds in short-term money market instruments, since such instruments have low price volatility.

Money market mutual funds are investments in securities that have a maturity of less than one year. Such companies are the least risky among other types. Very often they are used in their portfolios as a refuge when leaving the stock market.market, despite this, they sometimes give out high returns.

Benefits of investing in money market mutual funds

1. Diversification is the redistribution of risks between several financial instruments.
2. Professional money management - accompaniment of depositors' investment company managers throughout the investment process.
3. Wide choice. The possibility of a wide choice of capital investments is provided by a considerable number of mutual funds (stocks, bonds, money market).
4. Liquidity - an investor can sell their shares at any time and return the funds.
5. Savings - the investor buys ready-made portfolios of financial intermediaries, and does not compile it himself from the securities of individual corporations.
6. Protect the investor and their rights - mutual funds are federally regulated through the Securities and Exchange Commission.
7. Convenience - stocks can be sold or bought with the help of brokers, financial advisors, banks, insurance agents.

Risks of investing in mutual funds

One of the main ones is the risk of losing invested capital due to a decrease in net asset value (NAV). In addition, there are other risks:

• interest;
• market;
• related to the quality of securities.

As market interest rates rise, there is less pressure on the bond and equity markets, resulting in lower NAVs of bond funds andshares. Decreasing market interest rates have the opposite effect.

The quality of securities is determined by the volatility of stock prices. Depositors are often concerned about the risk of insolvency of mutual investment companies. The value of their assets may decrease, but the probability of this is small. The way companies are set up minimizes the risk of bankruptcy and fraud.

Mutual Funds in Russia

To date, the full potential of Russian mutual funds has not yet been fully exploited for several reasons:

1. The inflow of long-term private investments is limited in them.
2. Investing in pension savings mutual funds is prohibited by law in the Russian Federation.

These reasons limit the flow of funds to mutual investment companies, their increase is due to the recalculation of the value of portfolios and the revaluation of asset transactions. Mutual funds in Russia are small and do not allow for business scale. The average size of Russian investment corporations is an order of magnitude lower than foreign ones.

An example of a Russian mutual fund is the OIF "Sberbank - Money Market Fund". Its purpose is to generate cash by investing in short-term bonds of Russian issuers with high credit quality, thanks to the increase in market value and the receipt of large income, as well as receiving interest on short-term deposits in large commercial Russian banks.