Absolute return funds are investment funds designed to make money in all market conditions. They focus on returns rather than trying to outperform the market, and employ a range of strategies - like short selling - in an aim to profit regardless of market direction.
Learn moreAfter hours trading refers to the buying and selling of assets outside the standard trading hours of major exchanges such as the New York Stock Exchange. It might be used in an attempt to capitalise on price movements following key news events, to hedge, or to avoid price gapping. After hours trading can potentially be more volatile, and therefore risky.
Learn moreThe Amex Index refers to a series of stock market indices on the NYSE American, which lists small to medium-sized US and international companies, providing a benchmark for their performance.
Learn moreIn finance, animal spirits refer to the emotional and psychological factors that drive traders’ decisions, leading to fluctuations in financial markets beyond what would be expected from rational behaviour.
Learn moreAn asset refers to any resource with economic value that an individual, company, or institution owns or controls with the expectation that it will provide future financial benefit. Assets can include shares, commodities, real estate, and currencies, many of which can be traded with derivative products such as CFDs.
Learn moreAsset valuation is the process of determining the current worth of a financial asset or company. It might involve methods such as discounted cash flow analysis, comparable company analysis, or using market values for assets like stocks and bonds to establish their fair market value.
Learn moreAttitude to risk refers to the willingness of a trader to take positions that represent a higher chance of losing their capital. More risk-averse traders prefer lower risk assets that may have less upside but also less downside, while risk-seeking traders accept the higher chance of losing money for more potential upside.
Learn moreAn audited account is a financial statement that has been examined and verified by an independent auditor. The audit process ensures that the accounts accurately represent the entity’s financial position and comply with relevant accounting standards and regulations. This provides assurance to stakeholders about the accuracy of financial reporting.
Learn moreAutomated market making (AMM) is a type of trading system that uses algorithms to set buy and sell prices, providing continuous liquidity to markets. AMMs determine prices based on trading volume and demand, functioning without traditional human market makers.
Learn moreA mutual fund is an investment fund that pools money from a number of investors to invest in various securities, including equities, bonds and money market instruments. To many investors, choosing individual securities to invest in and manage can seem rather intimidating and risky. As a solution, mutual funds were created. Mutual funds are priced-based on a net asset value (NAV), which is calculated at the end of each trading day by dividing the total value of the securities by the number of the fund's shares outstanding.
Mutual funds are investment vehicles that pool money from multiple investors to invest in a diversified portfolio of securities such as stocks, bonds, and other assets.
Mutual funds are professionally managed by fund managers who make investment decisions on behalf of the investors and charge a management fee.
Mutual funds offer investors a convenient and easy way to invest in a diversified portfolio of securities without having to purchase individual stocks or bonds.
Mutual funds provide investors with access to a wider range of securities and asset classes that they may not have access to otherwise.
Investors in the fund may be both institutional or retail. Each one owns units, which represent a portion of the holdings of the fund. The gains generated from the collective investment are distributed proportionately amongst the investors. As it is collective, every investor wins and loses in equal portion.
While some mutual funds are passively managed, the majority of investors look for actively managed ones, in which a professional fund manager allocates the fund's assets, aiming to produce capital gains for the fund's investors. The decision to buy and sell securities are typically made by one or more portfolio managers, supported by teams of researchers.
A mutual fund's portfolio is structured and maintained to match the investment objectives stated in its prospectus. Since mutual funds can hold hundreds or thousands of stocks and bonds, they usually come with lower risk as they provide diversification.
Therefore, simply put, a mutual fund meaning a trust that collects money from many investors who share a common investment objective. It is one of the most practical investment options as it offers an opportunity to invest in a professionally managed and diversified basket of securities at a relatively low cost.
If you are interested in investing, you've probably heard of mutual funds many times. Typically, a number of financial advisors recommend them to investors, describing mutual funds as smart yet simple investments. Mutual funds’ accessibility and flexibility make them a powerful investing vehicle for all types of investors, including beginners and pros. These can also be appropriate for a variety of investing and savings objectives.
The origins of the term go back to 1772 – 1773 when the first modern investment fund was created in the Dutch Republic. In response to the financial crisis of that time, Abraham van Ketwich, an Amsterdam-based businessman, established a trust named Eendragt Maakt Magt, aiming to provide small investors with an opportunity to diversify.
In the 1890s, mutual funds were introduced to the US. These were generally closed-end funds. The first open-end mutual fund, known as the Massachusetts Investors Trust, was established in March 1924.
As we have mentioned closed-end and open-end funds, let’s speak about these in detail.
Closed-end funds. This type of fund has a set number of shares issued to the public through an IPO. Just like stocks, these are traded among investors on an exchange. Based on the fact that a closed-end fund doesn’t issue or redeem shares, it is subject to the laws of supply and demand. Because of this, close-ended mutual funds are often at a discount to their NAV.
Open-end funds. A majority of mutual funds are open-ended, which means they don't have a fixed number of shares. Instead, the fund issues new shares when an investor decides to buy and redeem the shares when the investor decides to sell. Therefore, they're bought and sold on demand.
There are thousands of mutual funds available, but they can be divided into a few basic types and categories. The two primary types of mutual funds are stock and bond funds. From there, the categories get more diverse and specialised.
For instance, stock funds can be further divided into three sub-categories of capitalisation: small-cap, mid-cap and large-cap. They are then categorised further as either value, growth, or growth and income.
Bond funds are primarily categorised by the duration of the bonds, which are described as short-term, intermediate-term and long-term. They are then broken into sub-categories of municipal bonds, corporate bonds and US Treasury bonds.
Here is what you need to know about the most popular mutual fund types:
When investing in a mutual fund, you can receive returns from three sources:
Dividend payments. When a fund receives interest or dividends on the securities in its portfolio, it distributes a proportional amount of that income to its investors.
Capital gain. If the fund sells securities that have grown in price, the fund has a capital gain. The majority of funds distribute any net capital gains to investors on an annual basis.
Net asset value. As the value of the fund increases, so does the price to purchase shares in the fund. You can then sell your mutual fund shares for a profit in the market.
Mutual funds come with both advantages and disadvantages. The main advantages are that mutual funds provide economies of scale, a higher level of diversification, easy access, liquidity, transparency and superior management by professional investors. On the negative side, investors in a mutual fund must pay various fees, commissions and other expenses.
Mutual funds, just like stocks and bonds, involve some level of market risk, which is the possibility of fluctuation in value or even the loss of money you invested. So, whether you're investing in individual stocks or a mutual fund, you need to have some knowledge about how the stock market behaves and prepare yourself for the risks in advance.