Mutual funds are a collective investment scheme joining the money of many investors which invests in different securities and profits from the large scale of these investments. Investments may be in shares, bonds or any combination thereof. The money in mutual funds is managed by professionals and every investor has a share of the portfolio pro rata the amount invested.
Main operating principles
Professional managers direct the funds by ordering the purchase or sale of securities from the fund’s portfolio. The depository bank monitors the whole investment process and supervises the correct valuation of the portfolio. When holding shares of a mutual fund, investors profit when the amount of the shares and/or bonds of the fund increases.
Types of mutual funds
Depending on the type of securities in which they invest and on the risk taken, mutual funds can be divided into several types. Depending on the degree of risk taken, they are generally low-risk, balanced and high-risk. The main difference between them is the degree of price fluctuation and possibilities for income which their shares offer. These characteristics represent the so-called major characteristics of the respective investment strategies.
- Economies of scale
- Professional Management
- Tax exemption