Mutual Funds I

I think I've read quite enough to blog about this topic.. And after organizing my thoughts, I felt that this is quite an interesting topic to talk about.

So what exactly are they? A very textbook kind of answers would be "wealth-managers". So basically, they pool money from all small investors( like us and people without any slight investing knowledge ), big investors ( mega rich ), institutional investors ( banks, pension funds ) and invest. By pooling money, these managers can have the "scale" to buy more ( which i would get back to you all later ) and a cheaper price. Hence with the ability of buying alot much cheaper, they are likely to make $$ in the long run ( say in a rising market )

So what do they buy? According to different funds and different aims, they can invest in a wide variety of products: cash bonds, stocks, derivatives( ascending order of risk ). Of course each genre has their unique characteristics and risks, but textbooks always say "never put all eggs into 1 baskets". So these people will hold a portion of each according to every individuals risk profiles and appetite. Some people that scared lose money to a large extent will have a risk profile of say C50%,B30%,S20%,D0% so on and so far. Of course different funds have different aims and hence have their different own risk profiles.

Investors should first find out how much are they willing to risk before investing in different funds. Self understanding is very important in this aspect. For a student like me, idle cash still serves as idle cash in the bank so I'm likely to have a huge risk appetite as bigger risk appetite USUALLY means HIGHER PROBABLE gains. In contrast, if my mum still have to pay down her debts for utilites, housing etc. So she's more likely to invest in products that are of lower risk in nature - lower risk USUALLY means LOWER PROBABLE GAINS, BUT LOWER RISK OF LOSING YOUR OWN ORIGINAL $$.

So these funds will do a match according to your risk profiles and try to PROJECT YOUR RETURNS in the say next 5yrs. So how do they earn your money? They earn your money base on 3 fees: entrance fee( understood rite ), returns fee ( take a portion of your profits if ever make some ) and exit fee ( when you withdraw $$ ).

So whatever mentioned is still very textbook based, very FYI kind. I think abit info overload, so I hope tomorrow I can continue on the critiques on these funds and hope I can put it as plain as possible.