Updated: Jun 20, 2019
In this article, I will introduce open-end funds which is a category of “mutual fund” which probably you already heard of. (This is one of the most boring article I have written, as it’s all facts and information.)
Let’s start with a brief description of what are mutual funds.
If you buy a stock from the stock exchange directly, you become a shareholder of the company that you bought the stock from. A mutual fund is a pool of investments managed by a mutual fund company and is invested into different “stocks”. When you invest into a mutual fund, you buy into the fund pool and you become a stakeholder of many companies together with your fellow investors. Open-end fund (or open-ended fund) are mutual fund that you can sell back to the fund house at any time. (as opposed to closed-end fund which I may introduce in another article.)
Why are mutual funds popular?
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1. Mutual funds are professionally managed: Pooled fund are managed by investment advisors* (also known as fund managers), backed by a team of researchers, investment analyst and strategists to provide detailed market information that need to be considered when choosing individual stocks and bonds.
(*Just to avoid any confusion, investment advisors are professionals that works in the fund house, they are not your financial advisor)
2. Liquidity: If you are invested in open-end funds, you can redeem (or sell it back to the fund house) any time at the actual value. (as opposed to closed-end fund that are sold to the market instead of a buy-back by the fund house)
3. Risk management (not putting all the eggs in one basket) - Mutual funds are invested into a wide range of stocks, securities and/or bonds from different companies of different industries or countries. This greatly reduced the risk of poor performance of any one sector or industry.
4. Easy access to information: You don’t have to spend time doing research yourself, information on your mutual funds performance can be accessed from most investment house website and you can make buying or selling decisions at the right moment.
Well nothing is perfect, there are some risks involved in mutual funds too, tio Boh?
Volatility: The overall mutual funds will change according to the different securities and stocks that the allocated fund manager places the pool investment into .There is no 100% guarantee on how much you will earn (return of capital or investment). The most popular approach is to analyse previous trends of that fund. And by previous, I mean past 1 year, 3 year and 5-year returns. This is what your Financial advisor,I will do for you. But if you want to be a DIY client, this is what I will advise as well. Besides historical performance, look at the deviation of the fund over the years. The rule of thumb is the less deviation a fund has, the more consistent it has been
You cannot tell the fund manager which securities he should be investing in: If you only trust yourself, or you think that certain stocks are a sure win. Mutual funds may not be the right investment instrument for you, Fund managers make their decisions supported by their research team, and investment strategy advisors. Before you decide to invest into any mutual funds, you can check the fund manager portfolio which are available information in the prospectus (or data sheet)
There is a fee whether your fund perform or underperform- You will need to pay for sales charges, management fees and other expenses irregardless how the fund had perform. Your financial advisor should provide you this information as well, or you should be able to find out on the fund prospectus too,
By now, If you are able to read this article to this very sentence, my next and last paragraph may not apply to you.
This probably is the most important part of investing and advice I have on this article. Investing into mutual funds can be a roller coaster experience. We* will definitely see some fluctuations along the way, but the key is to stay patient.
Note that I used “We” because as your financial advisor, I am your partner in the roller coaster ride.
If you are interested in knowing more about the open-end mutual funds, drop me an email firstname.lastname@example.org, or Click the chat button at the bottom of this page.