Safiya Burton, Contributor
SAFIYA BURTON
MUTUAL FUNDS provide investors with an excellent opportunity to save systematically in an investment account managed by financial experts. Surely, you can remember the counselling from our grandparents who usually advised us not to put all of our eggs in one basket. Many investors understand that by investing in mutual funds, they immediately gain the benefits of instant diversification to their portfolios. Additionally, for investors who do not have a lot of money, they can still invest and benefit significantly. This is achieved by the pooling of funds from several investors.
WHAT EXACTLY IS A MUTUAL FUND?
When you invest in a mutual fund, you are actually pooling your money together with many other investors. A professional investment manager takes that pool of cash and invests it for the whole group into a variety of investments, which may include bonds, stocks, real estate, short-term money market instruments or other securities, or some combination of these investments.
In simple terms, a mutual fund is merely a 'basket' of financial instruments. Central to the operation of a mutual fund is its investment objective. It is said that this is perhaps one of the most important considerations when deciding which fund to buy. For example some funds hold investments designed to pay periodic income while others hold growth investments, which are designed to increase over time. The bottom line is that any mutual fund you choose must suit your investment needs and personality, that is, risk tolerance, goals, time horizon and so on.
CHARACTERISTICS OF MUTUAL FUNDS
Investors purchase mutual fund shares from the fund itself instead of from other investors.
Mutual fund shares are redeemable, meaning investors can sell their shares back to the fund.
Mutual funds generally create and sell new shares to accommodate new investors. In other words, they sell their shares on a continuous basis.
The price the investors pay for mutual fund shares is referred to as the fund's net asset value (NAV). Additionally, shareholder fees may be imposed by the fund at the time of purchase.
INVESTMENT STRATEGY
We must have a strategy before embarking on any journey, and it is even more important when it comes to money. People under forty have a different strategy, in general, than people over forty. Once you reach that age you should be slowly converting your portfolio from aggressive growth to conservative growth.
If you have reached retirement age, then income production and wealth preservation will be the main focus of your investment strategy. However, because inflation can significantly increase the cost of living, retirees will need some aspect of growth in their portfolios in order to ensure that their portfolios will continue meeting their financial needs as they move on in years.
Safiya Burton is vice president for GK Funds Management (Cayman) Limited, an offshore mutual fund subsidiary of GraceKennedy Limited. For further information, please visit www.gkfunds.com
Taken from The Sunday Gleaner, October 9, 2005
