Level 2 InvestmentWhat is Mutual Fund?
A Mutual Fund is an investment company that pools the funds of many individual and institutional investors to form a massive asset base. The assets are then entrusted to a full time professional fund manager who develops and maintains a diversified portfolio of security investments. People who buy shares of a mutual fund are its owners or shareholders. Their purchases provide the money for a mutual fund to buy securities such as stocks and bonds. A mutual can make money from its securities investments in two ways: a security can pay dividends and interest to the fund, or a security can rise in value. The fund passes any dividends, interest or profits on the sale of its portfolio securities, less fund expenses, to shareholders in the form of distributions.
source:http://www.pifa.com.ph/mf_101.html What are the four basic types of mutual funds in the Philippines?
In the Philippines, there are currently four basic types of mutual funds---stock (also called equity), balanced, bond and money market funds. Bond funds invest primarily in bonds such as treasury notes issued by the Philippine government and commercial papers issued by reputable companies in the Philippines . Having a full basket of only fixed-income securities, bond funds provide capital preservation while maintaining a conservative stance in terms of asset allocation. Like bond funds, money market funds also have a conservative stance since they have a full basket of fixed income funds. The main difference lies in the term of investments of money market fund investments, which is one year or less. Equity funds invest primarily in shares of stock issued by Philippine corporations. The dominance of stock issues within the portfolio positions the fund to attain a more aggressive rate of growth. Balanced funds invest in both shares of stocks and bonds, thereby accessing the growth potential of stocks tempered with the presence of secure fixed-income instruments. Professional fund managers create value for shareholders by providing superior yields within controlled risk exposures. Certainly, expective in both security selection and asset allocation go a long way in ensuring better long-term rewards for mutual fund investors.
What is the difference between Bonds and Stocks?
Bonds vs. Stocks: Lender vs. Shareholder
When you buy a stock, what you are buying is a small piece (or a large piece if you are someone like Warren Buffet!) of ownership in a business. As an owner you have special privileges, including the right to vote on matters that could affect the future of the company. More importantly however, is this: As a stockholder you have the right to share in the profits of the business, when and if those profits are paid out in the form of dividends. Just as a company can raise money by issuing and allowing people to buy its stock, companies can also raise money by issuing debt in the form of a bond offering. When you buy a bond you are not getting any ownership in the company, but rather you are buying a piece of the company’s debt. As a bond holder you have no voting rights and do not get to share in the profits of the company, however you do receive other advantages that you do not get when buying stock in a company. Bonds vs Stocks – How you Make Money One of the primary reasons why the price of a stock goes up or down is the profitability, or lack thereof, of the company whose stock you own. If the company makes a lot of profits, then its shareholders (the people who own stock in the company) often stand to make a lot of money as well. Conversely, if the company loses money, then its shareholders generally expect to loose money on their investment as well. If things get so bad with the company that it can no longer pay its obligations and files for bankruptcy, stockholders are generally last in line to get their money back, and therefore often lose their entire investment As a bondholder you receive an interest payment at specified intervals, regardless of how the company is doing (as long as the company does not go bankrupt). While the price of a company’s stock will be affected by any piece of positive or negative news from the company or the economy, as long as the company is earning enough money to pay its debt obligations, they are legally required to do so. This means that, good or bad, as long as the company does not file for bankruptcy, you get your interest and principal payments. The downside here of course is that if the company has a great year from a profits standpoint, you will not earn any additional interest either. Bonds vs Stocks – When a company goes bankrupt Another key difference between a bond and a stock is what happens when a company files for bankruptcy. As discussed above, stock holders are last in line in this situation. With this in mind, another advantage of owning a bond over a stock is that generally bond holders are the first people in line to get whatever money is left and/or which can be generated by the sale of the company’s assets. Only after all the bond holders and other creditors are paid, will stock holders get any of their money back. More times than not, in the case of bankruptcy, there is not enough money to make the bond holders and other creditors whole, so stock holders end up with nothing.
What is the difference between Mutual Fund and Stock Market?
Mutual fund is a low risk low profit form of investment, the stock market is a high risk high profit one. The returns in the stock market are much higher and quicker, and given the pre-condition that you are able to dedicate your full unbiased time to the stock market, there is no better option available. But at the same time, the risks are double. The stock market is not for the faint of heart and can fluctuate wildly. It is recommended that you acquire a book on stock market tips for beginners and start with the basic fundamentals of training. So, if you do not have the time, it is not wise to invest in the stock market. As you know that stock market is full of risks but if you manage to overcome it, you can be successful.
Playing with Mutual funds is a lower risk than playing with the stock market. If you put all your money into one stock, it is like putting all your eggs in one basket. If that basket drops, all your eggs will be cracked. A mutual fund is filled with diversified options, so you are putting their money into a variety of baskets.
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L1, Long-Term Healthcare L3, Stock Market L4, Real Estate L5, Big Businesses |