Investment is a term, which is frequently used in the field of economics, business management and finance. It reflects savings or savings made through delayed consumption. Investment can be subdivided into different types according to various theories and principles.
There can be a number of definitions of Investment. However, because the goal of our company is a personal financial planning for individual clients, we will use the definition of investment as a form of Personal Finance:
According to personal finance theories, an investment is the implementation of money for buying shares or mutual funds or purchasing an asset with the involvement of the factor of capital risk.
Despite experience in numerous investment instruments we specialize in investments through Mutual Funds.
What is a Mutual Fund? Why Mutual Funds? What is its advantage?
Mutual fund is a type of investment in which the money of many investors is pooled together to buy a portfolio of different securities. The fund is managed by professional(s) –investment company who invest in stocks, bonds, options, money market instruments or other securities. They offer investors a variety of goals, depending on the fund and its investment charter.
Mutual funds are historically supposed to be the best mode of investment in the capital market since they are very cost beneficial and simple, and do not require an investor to figure out which specific securities to put their money into. The responsibility of investing the pooled money into specific investment instruments, such as bonds and equities, lies with the fund manager(s) of the Mutual Fund. Therefore investment in a mutual fund means that the investor has bought the shares of the mutual fund and has become a shareholder of a diversified financial instrument.
Diversification of investment
Investors are able to purchase securities with much lower trading costs by pooling money together in a mutual fund rather than trying to do it on their own. However, the biggest advantage that mutual funds offer is the diversification, which allows the investor to spread out their money across a wide spectrum of investments, and do so in a timely manner. Therefore when one investment is not doing well another may be doing very well thereby balancing the “risk to profit” ratio.
Different types of mutual funds may be divided into the following 3 main groups:
Money market funds
They are considered the safest mutual fund investments because historically these funds have maintained a 100 % success rate as none have ever gone bankrupt! Therefore serious investment objectives like storing money for emergencies, saving for the short term, or looking for a place to store cash from sale of an investment, are perfectly compatible with money market funds.
Bond funds
Investments in bond funds have more risk than those of the money market funds and are usually aimed at consolidating a portfolio by generating more income. Some of the main bond funds are:
- Municipal and provincial bond funds
- Corporate bond funds
- Mortgage backed securities funds
- Government bond funds
Stock funds
Stock funds promise more revenue but are much riskier as a result of their exposure to the turbulence that stock markets occasionally experience. Where money market funds and bond funds give a return on investment that is barely above inflation, stock funds have much higher earning potential.
In conclusion, different mutual funds have different risk approaches from very safe Money Market funds up to the extremely aggressive Hedge Funds. As a rule of thumb in picking an investment fund:
Less risk = less potential profit. More risk = higher potential profit.
Your choice – Our help!
For more information - Contact us.
