You all know that you cannot grow your wealth without investing money, but many of you do not know much about investing assets. When it comes to getting your foot wet, you try out shares. Although shares are extremely volatile because of fluctuation in share prices, every novice begins with investing in shares because there is no restriction on an investment limit. It is up to you whether you want to buy a single share or multiple shares.
There are two types of options available: either you can own shares yourself, or you can pool your money with other investors called funds. If you are buying shares yourself, you are a direct owner of a slice of the company. It means you will have a fraction of ownership of the company. As you buy a share, you instantly become a stakeholder. When you own shares, you deal with independently, which you can sell them at any time you want. You will make profits by investing in shares two ways: first, you will earn a dividend, and second, you can make profits by selling them when prices increase.
Unlike a share, the fund creates a pool of money, known as a collective investment that involves money from other investors. Since you do not have control over funds, you cannot earn money through dividends and capital gains. You cannot decide when to sell it because the mutual fund manager takes this decision.
If you are a first-time investor, pooling your money is considered a safer option. Since you are not putting all eggs in one basket, you will likely make a significant amount of profits. Here is what you need to know about funds if you are looking to invest in them.
They have a specific theme
When you are picking a stock, you will likely bear two types of risks – sector risk and stock risk. Despite a booming sector, a particular type of stock will unlikely be worth investing because of its attributes. If you invest in sector funds, you will remove stock risk. Sector funds cover stocks, particularly from one type of sector or industry.
However, most mutual funds are thematic funds. These themes include geography (Japanese, European, Asian, emerging markets), industry (green companies, utility firms), type of investments (shares, private bonds, government bonds), and size of the company. It means if everything goes well, you will earn massive profits, and if the market plummets, you will bear massive losses.
You will have to choose a platform
You can either use an online platform or use apps. Since the platform is a one-stop-shop, you need to be careful about choosing it. You will have the same platform to buy funds, hold them throughout the term and sell them.
Before you start investing in funds, you will have to pick the platform and then you will have to decide which investment to put in. Note that you will have to pay for both using the platform and buying the funds. The platform charges can vary. Make sure that you shop around.
Actively vs passively managed funds
Actively managed funds are those that require management to make decisions about how to invest the money. Passively managed funds, on the contrary, follow a steady performance of the market and do not emphasise maxing profits.
Since actively managed funds involve fund managers who carry out a lot of research and actively make a decision where and how to invest in providing you with better returns than the market, they come at a higher price.
Remember the following golden rules
To have a good investment journey, do not forget to follow golden rules mentioned below:
- It is wise to take on more risk (subject to your affordability) to maximise your returns. Consider an investment expert’s advice if you are not able to arrive at a decision.
- Try to diversify your assets as much as you can. Make sure that each investment works independently to minimise losses in case of market plummets.
- Do not follow the crowd. Remember that your investment goals and financial condition are different from others. Do not panic and rush selling your investments just because prices have gone down.
If you are not able to decide how and where to start, you should consult an investment expert. Investment is not easy at all. Even if you want to buy one share, you might come up with as many hurdles as possible.
It is not like merely typing in the search bar how to buy shares and you are all set to go. Regardless of the investment, you are looking to; it involves a lot of planning, framing investment goals, analysing your current financial condition and calculating risk affordability. So, when are you going to invest in funds?
Description: Before you start investing in funds, read this blog. It discusses some essential points you must know.