👋 everyone,
This weekend I attended my brother’s birthday and I thought I’d use the occasion to do a bit of research (I know, what a FUN guest I am 🫠). Ahead of tucking into our meal, I asked everyone around the table if they knew what a mutual fund was.
Most had a look of 😵💫 , a few hazarded a (wrong) guess whilst others ignored me completely and gulped down their aperitif in mild panic.
And with that I was confident I knew what my next Concepts of Finance topic should be!
Today I am going to cover:
📝 A quick explanation of mutual funds
Types of mutual funds
Why people invest in mutual funds
📹 Video explainer
Key players involved in mutual funds
🛠️ Some useful tools
(Quickly) explained:
A mutual fund is like a group of people (investors) who pool their money together to buy different types of investments like stocks or bonds (these can also be known as ‘securities’).
This pool of money is managed by a professional (Fund Manager) who decides what to buy and sell in order to try to make money for the group.
The profits or losses from these investments are then shared among the group based on how much money each person put in.
This way, even if one investment does poorly, the group is not completely affected because the money is spread out across many different investments
✍🏼 Types of Mutual Funds:
Equity Funds: These funds buy stocks of companies to make money through increases in the stock's price or from dividends the company pays to its shareholders
Bond Funds: These funds buy bonds issued by companies or governments to earn interest payments, which is a regular income for the investor
⚖️ Balanced Funds: These funds invest in a mix of stocks and bonds to provide both growth and regular income
Money Market Funds: These funds buy low-risk, short-term debt securities that mature in less than a year, like government bonds or certificates of deposit, to earn interest while keeping the investment safe
Index Funds: These funds track a specific market index, like the S&P 500, and aim to earn similar returns as the overall market
Sector Funds: These funds invest in a specific industry or sector, like healthcare or technology, to gain exposure to that sector's growth potential
🌎 International Funds: These funds buy stocks or bonds of companies based outside of the investor's home country to diversify their portfolio and take advantage of opportunities in other markets
👀 Why do people invest in mutual funds?
Mutual funds are a relatively hands-off way of investing in many different assets at once - within a single investment trust you can gain exposure to hundreds of stocks, bonds or other investments.
Mutual funds are sometimes popular with investors who don't want to pick and choose individual investments, but want to benefit from the historically high average annual returns of the stock market.
📹 Mutual funds explained…in 58 seconds
Key people involved in managing mutual funds:
🤹🏼 Portfolio Manager: Responsible for making investment decisions and managing the fund's portfolio in accordance with its investment objectives.
🕵🏾 Research Analysts: Conduct market research and analysis to identify potential investments that align with the fund's objectives.
🫱🏽🫲🏼 Traders: Responsible for executing trades in the market, buying and selling securities on behalf of the fund.
🚔 Compliance Officers: Ensure that the fund operates in compliance with regulatory requirements and internal policies.
📝 Operations Personnel: Handle administrative tasks such as record-keeping, accounting, and reporting.
🛠️ Tools
Fidelity have a pretty helpful tool which allows you to search and filter mutual funds and it also has a helpful beginner guide too!
Thank you very much for reading 🙏 if you found this helpful and enjoyed the post, I’d be super grateful if you could hit the ❤️ below - thank you! And if you have topics you’d like me to explain just hit reply and let me know.
DISCLAIMER: None of this is financial advice. Concepts of Finance newsletter is strictly for educational purposes.