All You Need To Know About Fund Investment
What is a fund ?
A fund is a form of collective investment scheme that gives you the opportunity to invest indirectly in equities and other investments. Each individual investor buys units in a fund. The money is pooled and invested by an expert fund manager in accordance with the fund documentation. Funds which are authorised by regulatory authorities are generally required to publish a prospectus and other documentation, which set out the rules under which the fund will be managed.
How are funds priced ?
The price of a fund unit or share is calculated daily for most funds and it depends of the value of the underlying asset held in the fund. It is of utmost importance when it comes to fund pricing that the investors buy or sell at a price that truly reflects the value of the underlying asset.
The manager is allowed to take into consideration at the outset the most suitable pricing method for a fund, based on the needs and expectations of the fund’s investors. The regulations require that, once calculated, a price be quoted to at least four significant figures.
There are two pricing methods – single and dual pricing. Whichever method is selected must be recorded in the prospectus.
Passively or actively manage funds?
If you are placing your money in funds, you will encounter two main strategies – passive or active management.
Actively managed investment funds are run by a professional fund managers or investment research teams who make all the investment decisions, like which companies to invest in or when to buy and sell different assets, on your behalf.
While passive management is a style of management associated with mutual and exchange-traded funds(ETF) fund’s portfolio mirrors a market index.
The difference between them is that passive investment funds will simply track a market, and charge far less in comparison. The funds are essentially run by computer and will buy all of the assets in a particular market, or the majority, to give you a return that reflects how the market is performing.
However, if you pick the right actively managed fund, you could make much more money than you would with a tracker fund or ETF. More information about how you can benefit best from either one of them can be found by clicking here.
What charges are involved when investing in a fund ?
When you are investing in a fund, you have to know that it takes time and money, and you must be prepared to pay reasonable fees. Of course, if your fund charges higher fees, you’d expect the fund to perform above average, but that’s not always the case. There’s no real proof the fund manager can provide you with to assure you that the fund delivers high performance consistently. That is why you have to make sure yourself that the fund you are investing in will bring the desired outcome for its value and the service you expect.
How to build a strong portfolio ?
Funds are known to be an important core of a portfolio. Building a strong portfolio doesn’t have to be time-consuming or complicated, you just have to follow certain steps and with the guidance of a financial advisor you can easily apply the steps in your situation. The earlier you start investing, the more time your investments have to grow in value. Another reason to start early is that the younger you are, the less burdensome financial obligations you have that means you can allocate a small portion of your portfolio to higher risk investments that can bring greater yields.
The key to a profitable portfolio is diversification, but there’s also a risk of over-diversification. The whole point of it is to smooth out the peak-and-valley pricing effects brought about by normal market fluctuations and combat longer term stock/market downturns. Anything beyond that can quickly become counterproductive, which is why it’s so important to understand and know all the information and key points of building a profitable portfolio.
There’s a guide that will provide you with this information and all you need to know about funds, reducing costs and building and maintaining a well-balanced portfolio. This guide answers the following questions:
- The basics – what are funds and how do they work?
- Passive and actively managed funds – what’s the difference?
- How can you deal in funds?
- What charges are involved with investing in funds and how can they be reduced?
- How to research and choose funds – what questions should you ask?
- Lump-sum investing and regular savings in funds
- How to invest tax-efficiently in funds