Bank interest rates hit historic lows, and people with horror look at their money losing value. Many of them try to find a product in which they would get a higher yield than the bank. But not everyone will find a suitable solution, and while they are on the spot, their money can be inflated by inflation.
The solution for them can be mutual funds, which in the long run achieve higher returns than bank products.
Whether the goal of investing is new housing, paying out a mortgage, saving children or retiring yourself, mutual funds can be the right choice. Of course not for everyone.
What is a mutual fund?
Before I start, I would like to clarify a few basic concepts.
The mutual fund is an investment product that operates on a collective investment basis. The investments of several shareholders entrusted to a professional trustee are merged into one large investment – a mutual fund.
Subsequently, the fund manager invests the fund’s assets according to a pre-agreed strategy. You share the revenues and potential losses with other shareholders, depending on how the manager manages the assets.
Basic breakdown of mutual funds according to the instruments in which they invest:
- Equity funds
They invest in shares of different companies. They can achieve the highest yield, which is associated with a higher risk. Investing is therefore appropriate for a longer period, given the long-term goal of companies – to make a profit.
- Bond funds
They invest in debt securities with maturities longer than 1 year. There is no large fluctuation in bond and bond prices over the 1 to 3 year period. Therefore, they are considered to be relatively safe and intended to be a more conservative client. They are suitable for medium-term investments and yield higher than bank deposits can be expected.
- Money market funds
They invest in short-term money market instruments and represent the safest type of mutual fund. This means less revenue, a short investment horizon and minimal or no fees.
- Mixed funds
They invest in equities, bonds and money market instruments at a different rate from fund to fund. The investment horizon and the level of risk depend on the proportion of securities in the portfolio.
- Funds of funds
They invest in other funds and represent a high degree of diversification within a single fund. The advantage of some of these funds is active management, which means that the investor does not have to take care of his investment and monitor the financial markets.
What are the benefits of investing in mutual funds?
- Higher yield
In the long run, they yield higher returns than conventional banking products. However, the yield depends on the situation in the financial markets, the strategy and the quality of mutual funds.
A standard way to reduce risk and avoid fluctuations in financial markets by dividing the investment into smaller number of investments in multiple assets.
If necessary, you have your funds on your account within a few days. Often without output charges and other restrictions.
You know in advance where your money is invested and what fees are associated with it. You can easily find out the value and performance of your funds at any time through your online account access.
- Professional Report
Mutual funds are managed by qualified professionals – portfolio managers who manage the operation of the fund. They have access to important information and are constantly monitoring the market situation and developments.
- Protection by law
Mutual funds are regulated by the Collective Investment Act and the Securities Act. Unitholders’ assets are strictly separated from the assets of the management company. Supervision of the administrator is performed by the National Bank of Slovakia.