Sunday, January 9, 2011

How to Pick Investment Facilities

Before finally deciding to invest your hard-earned money, make time to reflect about your risk tolerance. Are you more of a risk-taker? Will you not get nervous if the prices go 50% lower than your purchase price?

My discussion will all be about mutual funds. They are the easiest investment facilities I know where in a normal person like you and me can go into.

Mutual funds are like banks. They both collect money from people and invest it. Banks invest their money through credit. That’s why a lot of banks are promoting credit cards. Unlike banks, mutual fund companies invest a chunk of the money in stock market. They have an array of researchers to do the math and they have a captain, whom they call the fund manager, who decides where to put the fund. You pay these researchers and the fund manager with least possible cost approximately 2-3% of your investment capital. Not bad if you as an investor can gain 12% from them.

I’ll be introducing 3 kinds of mutual funds in this article.

Bond Fund

Bond funds are what they call the “safest” among the three. Approximately 90% of the fund are invested in government bonds and only 10% are in stocks. Since this is the “safest” among the three it also has the smallest earning capability. Around 3 to 6% per annum. Use this fund if you don’t like volatility and if you want to maintain the value of your money.

Balance Fund

Balance funds invest 50% in government bonds and 50% in stocks. If you want more risk at the same time a good security then this is the way to go. It gives an average return of 6 to 10% per annum. Most of the times people who invest in balance funds are those who don’t know what their risk tolerance is. So they go midway.

Equity Fund/Stock Fund

If you are a risk-taker and can take volatility then equity fund is a great vehicle to achieve your long-term financial goals. In a long-term basis this fund can reach 12% (or more) interest per annum. Equity funds invest 90% of the money on stock market and 10% on government facilities.

If you want to know more about mutual funds just drop me a note so I can give you the contact number of an organization that discusses mutual funds.

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