THE mutual funds They are like containers that collect multiple financial instruments within them (actions, bonds, government bonds, etc.) in various combinations, where people bring together their money and then invest them. Are managed by specific companies, calls Savings management company (Ash). The operation is simple: a investor acquires shares of a common fund, together with other investors. The value of the shares varies according to the results of the investments of the fund. As a result, the investor can earn or lose money depending on the market trend.
How the “Financial Garden” works
The Municipality of Investment Fund It is like a garden, where there are several plants (which represent actions, bonds, government bonds, etc.). Everything is fine investor He owns a part of the garden and entrusts the Giardiniere (the fund manager) the task of taking care of his portion.
In it, some plants grow quickly (such as the actionswhich can have sudden highs and lows in their value), while others are more stable and grow slowly (like the bondswho tend to give more constant returns). Thanks to the variety of plants, the risk Of damage due to adverse climatic conditions (like a collapse of the bag) it is reduced: if one plant suffers, another could thrive. The gardener, expert in taking care of plants, tries to obtain the best possible growth, but there is never the certainty that all plants grow in the same way. The overall value of the garden depends on the results of the individual plants (i.e. investments) over time.
Types of funds
Exist different types of fundsthe most common differ in combination of securities, degree of risk and therefore time horizon (the average time of possession of that investment to have the predefined results):
- Shareholders: they mainly invest in shares, and therefore have a higher degree of risk but potentially also a higher profit, they are usually considered long -term.
- Bond funds: invest in bonds and government bonds, with a generally lower risk than actions, and with a short-medium time horizon.
- Balanced funds: they have both actions and bonds inside, thus trying to balance performance and risk, with medium time horizon.
- Monetary funds: they invest in short -term tools, like short -term state securities, have a very low risk, with short time horizon.
In addition, the funds can be distinguished in two main categories:
- Open funds: you can buy or sell shares at any time.
- Closed funds: the quotas can only be purchased during a precise period and the money will be returned only at the expiry of the fund.
Advantages and risks of mutual funds
A great advantage of mutual funds is that they allow investors to delegate the management of their money to Expert professionalswith specific skills in the sector. This is particularly useful for those with little experience and want diversify their investments effectively, without having to manage your portfolio directly. In addition, the funds offer the possibility of diversify investments, reducing the risk with respect to a concentrated investment in a single financial instrument. For example, a Fund will invest in a selection of actions Coming from different sectors and countries, reducing the impact that the failure of a single title can have on the entire wallet.
Let’s take an example:
Imagining he has 1000 euros and decide to invest in a common fund that has only inside 10 shares Of car manufacturersstarting the money in 100 euros For each title. If one of the companies were to fail, there would be a loss of 1/10 of the investment, i.e. 100 euros. However, this loss would be only temporary, because the consumers who previously bought cars from the bankrupt brand would turn to the other car manufacturers left in the bottom. The 9 car manufacturers remaining could therefore benefit from an increase in sales and therefore of the value, compensating the initial loss caused by the failure of one of the companies.
This example highlights the importance of diversification. By investing in a single company, in case of failure, the entire capital would be lost. With a common investment fund that includes multiple companies, however, the loss would be limited to 100 euros And over time, it could be recovered thanks to the growth of other companies. There diversification It reduces the overall risk and increases the chances of recovering any losses over time. However, it also reduces the possibility ofEarning a lotsince a single title can earn or lose a lot, while a fund, thanks to the presence of many titles, will have an increase and a reduction in value in a more content percentage, because it is less exposed than the individual title.
It is important to remember that, in most cases, There are no guarantees on returns or on the total recovery of the sum invested. The results obtained will always depend onFinancial market trendwhich will be influenced by the skills of Fund managers. However, as for any investment, it is necessary to understand the risks and costs related to the management of the fund (the gardener in the previous example), in addition to monitoring the trend of the bottom over time. Before investing, it is essential to read the carefully documentation provided, like the prospectusto make a conscious choice.
To protect investors, they exist Personalized consultancy profiles which must be completed before making an investment: these allow, based on the answers provided to questionnaireto direct to the most suitable investment tools in relation to the risk propensity and totime horizonas well as other specifications. It is therefore advisable to rely on professionals in the sectorlike i financial consultantswhich will help to choose and combine the most appropriate solutions.
