[Mutual Fund] Stock Market Basics – Mutual Funds
October 25, 2011 – 1:19 amMutual Fund (investment company), also named Unit Trust in UK, is growing very fast around the world. The mutual fund accumulates capital from small investors and invests on stocks, bonds, futures, precious metals, options, warrants and real properties. The mutual fund is managed by professional fund managers who are responsible for growing the capital. Mutual fund investors enjoy benefits from the capital grow, at the same time, they are subject to risks that the fund manager may fail and result in losses.
? There are different types of mutual funds.
1.Company type: Company type mutual funds collect capital through IPO. By setting up a company, mutual fund investors become the shareholder of the company. Most US mutual funds belong to this type.
2.Open type: The scale of the fund can be enlarged according to the size of subscriptions. The size may shrink due to re-buy from investors. The buy and sell price are calculated based on the size of net assets of the fund.
? Different funds have different approaches in growing capital.
1.Grower: The grower focus on the long term grow of capital, they mainly target on companies which have high potential to grow.
2. Profit taker: They focuses on treasury bills, bonds and fixed-income securities in order? to obtain a steady income for long term.
3. Balancer: Focus both on long term grow and steady income. They focuses on both stock and bonds.
4. Stock buyer: The stock buyer invest most capital in stock market.
5. Precious metal fund: Main focus on the investment in precious metal industry. Their investment are strongly subject to movement of metal price like gold price.
6. Money market fund: Specialize in foreign currency trading. They use instruments in the forex market.
7. Regional fund: Specialize in regional investment. The risk diversion of such fund is high as the economic and political situations among countries are so different.
? Some funds are managed by mangers who are very different in investment styles, so the correlation between instruments is low. This helps to diverse the risk which investors have to take. Theoretically, risk is reduced in these specialized funds.
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