It is recommended to novice investors, because a mutual investment fund (mutual fund) does not require in-depth analysis and independent management, and in terms of profitability it can outpace a bank deposit.
Mutual investment fund – what is it?
This is a portfolio of securities that are combined for some indicator or attribute. Most often they are made up of one economic area. Mutual funds may consist of different assets: stocks, bonds, futures, currency.
Example
Mutual Investment Fund “VTB – Equity Fund” invests assets in fundamentally underestimated shares of large and stable Russian enterprises with a focus on “blue chips”.
Mutual Fund “April Capital – Shares of commodity companies” forms its strategy on investing in shares of companies engaged in the extraction and export of raw materials.
The portfolio of the fund is managed by the management company.
She buys and sells securities, makes transactions with foreign currency, leases real estate, issues loans or loans. If the Asset Management Company does this successfully, the value of the entire portfolio and each share (mutual fund security) increases.
The client does not have the right to dispose of the property of the fund
In fact, he, together with other clients of the fund, puts money in a common safe. And the fund takes them to manage assets.
The work of the management company is controlled by law. She cannot sell everything and the abyss with money in one moment. In addition, she is interested in good results: the profitability of the fund will increase -> there will be more customers -> will earn more on commissions.
How are mutual funds
The shareholder (mutual fund client) owns the share. This is a registered paper giving the right to a share of the stock property. Entering the mutual fund, the shareholder agrees with the investment strategy of the management company.
Usually the UK controls several funds. Each one has a different strategy, entry threshold, profitability to risk ratio. This is necessary to satisfy the needs of customers with different investment horizons..
The income of the management company consists of the commission for services and payments for transactions with shares. The relationship between shareholders and the management company is governed by the “Rules of Trust Management” (PDU). This document indicates how the fund works: structure, composition, strategy.
The shareholder ceases to be the owner of the property or money that he included in the fund. Now this is the shared ownership of the mutual fund. At the exit, he can only receive an amount equal to his share.
Who controls the management company
- Specialized Depository (DM). It takes into account the assets of the funds, ensures that the work of the mutual fund and the capital company complies with the law and the interests of the shareholders, approves the transactions. The SD is licensed by the Central Bank of the Russian Federation, but receives a fee from the management company.
- Central Bank of Russia. It receives reports from the depository and management company, checks the legality of transactions, protects the interests of shareholders. A specialized depository is obliged to give information about the work of the authorized capital at the request of the Central Bank.
Types of mutual funds by structure
- For qualified shareholders (quarterly). An option for experienced investors who agree to invest with great risk, but high potential profit. Such investors influence major fund transactions through an investment committee..
- For unqualified shareholders. Option for beginners. Such funds include simple, less risky tools, and shareholders do not affect the decisions of the management company.
Types of mutual funds by assets
- Real estate funds. The main income of the fund consists of renting real estate purchased with the money of shareholders. Such mutual funds are stable, but they need a lot of money to join them, so they are created for qualified investors.
- Securities and financial instruments funds. The UK manages shares, bonds, currency, loans, and shares in enterprises. Such mutual funds work for unskilled investors, therefore they have a low entry threshold (from 1 thousand rubles).
- Combined. Such assets include any property other than money: an airplane, a car, expensive wine, options for goods, precious metals, paintings, foreign deposits or a private road. The only condition: the property must be indicated in the remote control and stored in the depository. That is, a shoe factory cannot be included in this mutual fund, and shoes – yes (the fund will buy them from the factory). Combined funds have a large entry threshold; in Russia, investors and management companies are still cautious about them.
Example
Promsvyaz Asset Management has a real estate investment fund Azimut with an NAV (net asset value) of 1.4 billion rubles.
Business House Kalita Asset Management Company – IPT – Real Estate Fund with a net asset value of 4.5 billion. Both funds are closed and serve qualified investors..
Types of mutual funds by purchase date
- Open. Units are bought and sold at any time..
- Interval Applications for the purchase of shares are accepted in specific temporary “windows”.
- Closed. Purchase is possible only at the opening of the fund or with an additional issue of shares. The Criminal Code announces that it is creating a fund and for some time collecting applications. When the deadline passes, you can’t enter.
Example
“VTB – Precious Metals Fund” – interval fund. It works with precious metals.
Ak Bars Promotions is an open fund. He invests in shares of Russian companies.
How to earn
After investing property or money in the fund, you still have a share in the property – a share in the mutual fund. This is an asset that can be converted into cash in two ways:
- Redeem a share. That is, contact the management company so that it takes the share to itself and gives out an amount equal to its value minus the commission.
- Sell to another investor.
How much is a mutual fund??
The mutual fund value as a definition is missing – the client does not buy a package of specific securities. He transfers the money to the management company so that it invests them profitably. Minimum investments in open funds are usually equal to 1000 or 5000 rubles.
Profitability
Unlike bank deposits, mutual funds do not guarantee income. Depending on the actions of the management company, the market situation, macroeconomic events, the price of a share may rise or fall..
For example, if real estate becomes cheaper, the market price of the fund will be lower than the current one. If the conditions are favorable, you can sell the share more expensive..
Taxes
Shareholders pay personal income tax while they make a profit. But the tax agent is UK – it sends taxes for the client.
If the shareholder made a profit from the sale of his shares, he must pay the FTS himself. A resident of the Russian Federation will pay 13%, and a non-resident – 30%. There is a tax deduction. Personal income tax is not necessary when an investor owns a share for more than 3 years.
To whom UIFs are suitable
A mutual fund is a tool for investors who do not have the time or skills to independently manage money. This is the first reason many keep funds there. The second is a low entry threshold.
How to choose a mutual fund: instruction
- Set the amount of investments and investment term.
- Choose the type of fund: open or closed. Open funds are suitable for beginners: you can sell shares at any time. Closed funds cannot be used to receive money earlier than stated in the contract.
- Sort options by yield. See profitability for 3-5 years, not for a year.
- Leave funds with stable performance, a good rating of the management company (see here) and high NAV. The higher the NAV, the larger and more diversified the fund. Read information about the owners of the fund. Do you trust them with money?
- Learn commissions. The conditions for them may sound like this: for management – 1.9% per year. Commission for the purchase of mutual funds – is missing. When selling after 1 year – 0%; earlier than 1 year – 2% of the amount.
How to buy a share
- You can buy a share on the website of the management company.
- Select a mutual fund and find out the terms of service. What documents are needed for registration.
- When buying from the UK directly – send a request. When buying from another shareholder, enter into a contract of sale. It does not require notarization.
- Pay for the application online, at a bank or make a payment under an agreement.
Pluses of mutual funds
- You can get more profitability.
- No need to manage investments, analyze the market, diversify assets.
- Data on the composition, structure and managers are publicly available.
- Protected investment. The management company will not be able to sell assets cheaply in order to bankrupt the fund – the depository will not allow the transaction. Even one or two suspicious operations will destroy the reputation of the Criminal Code.
- Infrastructure costs of the management company are fixed in the remote control.
- You can change the management company or transfer money between mutual funds of one UK.
Cons of mutual funds
- In closed quarter funds take shareholders with very large budgets.
- Commissions are growing because the requirements of the Bank of Russia to the Criminal Code are becoming more complicated.
- The appraiser, auditor, registrar and board of directors receive money from the management company. This may affect their decisions where they are not against the law..
- The management company or the depository may lose their license. You will have to spend time looking for a new management company or wait until the management company finds a new depository.
- No yield guarantee.
- Investments in mutual funds are not insured by the state.
The largest and most famous Russian management companies
- Asset Management Sberbank
- UK Discovery
- VTB Capital Investment Management
- UK Uralsib
- Raiffeisen Capital
- UK BCS
- Alfa Capital
- April Capital
- MTS Investments
- TKB Investment Partners
- GK Region
These companies have a good reputation and extensive experience. But when choosing, look at the difference in commissions. Even 1% of lost profits in 5 years grows in a decent amount.
Where to look at the mutual fund rating
- Investfunds.ru – convenient search for mutual funds with filters and sorting.
- Here – ratings on profitability, the amount of funds raised, infrastructure costs.
- Mutual Fund Market Statistics.
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How does a mutual fund work? Can you explain the process and the benefits for potential investors? Also, who should consider investing in mutual funds? Looking forward to understanding more about this investment option!
A mutual fund pools money from multiple investors to create a diversified portfolio of stocks, bonds, or other securities managed by professional fund managers. Investors buy shares in the fund, which represents their ownership stake. The mutual fund collects dividends and interest from the securities it holds, and these are distributed to shareholders in proportion to their investments. The process allows individuals to invest in a diversified portfolio, even with limited capital.
The benefits of mutual funds include professional management, diversification, and liquidity. Skilled fund managers conduct research and make investment decisions, saving investors the effort and time required for individual stock selection. The diversification spreads risks across multiple securities, reducing the impact of any single investment’s performance. Additionally, investors can buy or sell mutual fund shares on any trading day, providing liquidity and flexibility.
Mutual funds are suitable for a wide range of investors. Those with limited knowledge or time to manage investments can benefit from professional management. Also, small investors can access a diversified portfolio with relatively small investments. Mutual funds are ideal for those seeking long-term growth, regular income, or both. However, investors should carefully consider their investment objectives, risk tolerance, and the fund’s fees and performance before investing.
Overall, mutual funds offer a convenient and cost-effective option for individuals to participate in the financial markets and achieve their investment goals.