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| Fund of funds | |||||
Hugh Pym of the BBC says that investors diversify their diversification,
time and again, in risky periods. On the safer side, investors invest
in - a fund, which invests in mutual funds - Fund
of Funds, Hugh added. A mutual fund, generally, is an instrument
for investing in stocks, bonds or short-term money market mechanism, variant
securities or different combinations of these investments by hoarding
money from investors. The combined share holding is called mutual fund
portfolios and each share is a symbol of an investors akin ownership of
the funds holdings and the income those holdings induce. Mutual Fund has mainly five different characteristics. Firstly, in general,
instead of purchasing from erstwhile shareholders on a secondary market
like other stock exchanges, investors purchase mutual fund shares through
investment brokers for the fund. Secondly, at the time of purchase funds generally impose certain amount of fees. So, the investor pays the shareholder
fees too in addition to funds/share net asset value (NAV). At the time
of purchase an investor has to pay the combination of net asset value
and the shareholder fees that imposes at the time of purchase, if there
are any. NAV of the fund is calculated and decided in every day. Thirdly, most importantly, mutual fund shares, by and large, are exchangeable
or redeemable. In general buying and selling of mutual fund shares are
through an agent generally called as share brokers. So, the investor is
allowed to put up their shares for sale to the broker or through the broker
of that particular fund. Fourthly, even though a number of fund shares stop selling once become
large in size, investors regularly sell Mutual funds shares on a continuous
basis. In short, Mutual Funds, more often than not, generate and sell
new shares to give room for new investors. Finally, the investment advisors of mutual Fund
of Funds have to be registered with Securities Exchange Commission
(SEC). In India, instead of SEC it is called SEBI (Securities Exchange
Board of India). Investment portfolios or the combined share holdings
of mutual funds are by and large managed by these registered investment
advisers. Ever and again investment has advantages and disadvantages, so with
mutual fund investments. But it is very important to remember that advantage
and disadvantage varies individual to individual. Any feature is an advantage
to one is wholly depends upon the individual circumstance. It is purely
subjective. Mutual fund features that matter to one may possibly not vital
to another. Some may think because of certain features mutual fund provides
an attractive investment choice instead some may not. On the whole, people
think it is an attractive investment choice because of certain of features
that Mutual fund provides. Firstly, involvement of the professional management in mutual fund business
is highly appreciated and considered as a good feature. Those professionally
trained, qualified skilled managers monitor the performance of the fund.
They select the securities after a through research and closely monitor
performance of the securities the fund purchases. Secondly, reducing the risk by spreading ones investments across a wide
range of companies and industry sectors. This helps investor and reduce
risk if not avoid if a company or sector fails to perform. The investment
strategy diversification is considered as a clear advantage by most of
the investors. By and large people find it easier to accomplish diversification
by having ownership of mutual fund than having individual stocks or bonds.
Thirdly, as mutual fund expert Pradeep Achuthan says, affordability
is one of the most important and best feature mutual funds have. Even
though the investor doesnt hold lot of money to invest, mutual fund provides
them a lodging by setting relatively low dollar amounts for initial purchase,
subsequent monthly purchase or both. Last but not least, mutual fund shares, by and large, are exchangeable
or redeemable at funds/share net asset value in addition to and are determined
on the day of redemption. Any charges and fees also can be assessed on
the redemption. This process can be possible at any time. So, liquidity
is considered as an important feature. Like any other investment, even though it is subjective, certain features
of the mutual fund are considered as a disadvantage by investors in general.
Firstly, in spite of the performance of the fund investors require paying
sales charges, annual fees and further expenses. Irrespective of the potential
performance of the fund one may require paying taxes, depending on the
time of investment, for the capital gains distribution they receive, says
Pradeep Achuthan. Secondly, investor does hold either control over the trading of shares
or the time of selling or purchasing. It is the sole discretion of the
investment managers, even though the managers act according to the advice
given by their experts. In short, it is worth considering that lack of
control over own investment always-lead one to confusion over mutual fund
investment. Thirdly, in contrary to individual shares, once cannot have funds/share
net asset value in every minute. It is not possible to monitor the change
of net asset value of the funds since it will only update once in a day
instead individual share performance can be monitored even minute by minute.
It is possible to know the selling price, on the moment of placing the
order, in the case of individual shares instead one will have to wait
hours to know the selling price of mutual funds. Fund of Funds sales have increased rapidly
since 1990 in spite of all those disadvantages. Investors admit that there
is a risk in investing in mutual fund. However, for a better gain, it
is important to take little risk than playing safe.
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