WHAT IS MUTUAL FUND?
According to Wikipedia, “A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities”. This simply means that the funds or shares are being bought, owned and shared among individuals known as stakeholders. These stakeholders are investing their funds for one particular purpose and although the investment is being managed by hired professional fund managers, the stakeholders share the profit and loss together. Most banks, stock firms and distributors in Nigeria operate mutual funds; Top Mutual fund operators in Nigeria include;
- Stanbic IBTC Nigerian Equity Fund
- Oceanic Vintage Fund
- UBA Equity Fund
- UBA Balanced Fund
- Fidelity Nigfund
INVESTING IN MUTUAL FUNDS
Investing in Mutual funds simply means you are to become one of these stakeholders. Your profit or loss depends on the amount of shares or units you bought. Supposing you bought 200 units and then the investment produces 10% profit, your 200 units will be increased to 220 units. Also if it produces a loss of 10%, your 200 units will be increased to 180 units.
There are three main types of mutual funds investing;
Fixed Income Funds; as the name implies, this type of mutual funds are fixed. The amount to be invested is fixed and the duration of the investment is also fixed that pay a fixed return on an investment.
Equity Funds; it is also called stock fund because you are mainly investing in stocks. It is considered as the most profitable but also the most risky.
Mixed Income Funds; also called balanced funds is a combination of both fixed income and equity funds. This is the most preferred type as it is seen as risk less.
In business, you make profits if the business is progressing, same can be said for Mutual funds.Your profits mainly rely on the ability of your fund manager to produce returns. Whereas you are not the one managing the investment, you are required to be up to date with the returns; at least an annual check is ok. At the end of the term, your fund manager shares the profit among stakeholders at the percentage gain of the investing amount.
Still, in order to be sure of making profit, there are some things you must note:
- Invest only with professional fund operators/managers so you can be assured of making profits.
- While investing, have a particular goal in mind, if your fund is not giving you the required profit, you should be alert and take action.
- Long term investing has been the most profitable so far, for Nigerians, 5 – 10 – 15 years of investing is ok, but also make sure you check its performance at least monthly or annually.
- Don’t be easily moved by the up and downs of the stock market. Business is risky so you should be ready to take risks.
- If your fund is generating steady income, it is advisable to take the opportunity and increase your investing amount.
- You can also make profit by selling your own units to other willing investors after getting an increase.