Guide To Mutual Funds

Guide To Mutual Funds

Mutual funds are your ticket to the world of investing. They provide an easy and cost-effective way to buy a whole basket of stocks or bonds that was put together by professionals.
A mutual fund is a large pool of money collected from everyday investors. The people who manage the fund invest the money in a diversified portfolio of stocks, bonds, or other securities - or some combination of them all. Usually their investments are focused on a certain area of the market, like an index, or international stocks or long-term bonds.

As a mutual-fund owner (also known as a shareholder), you don't own the securities in the fund directly. Instead, you own a slice of the fund, which is divvied up into shares. As the value of the investments inside rise or fall, so does the value of your stake in the fund. The price at which you can buy or sell shares of a mutual fund depends of the fund's net asset value (NAV). It's calculated by taking the current value of the fund's net assets (the value of all securities inside minus liabilities) divided by the total number of shares outstanding. The NAV is calculated at the end of each trading day.

There are thousands of funds out there and dozens of strategies. Here are some common ones:

Index funds
These are mutual funds that invests in a portfolio of securities that represents a particular market (like the entire stock market), or, a particular piece of a market (say, like, international stocks or small companies). These funds are built to replicate the performance of their relevant market - so they should track that market's indexes. For example a FTSE index fund aims to provide the exact same return as the FTSE index. We're big fans of these low-cost, low-maintenance funds.

Ethical Funds
The fund managers usually invest only in companies with proven social responsibilities or are considered to be the best in a sector. Likewise any company dealing in say arms or other politically incorrect ventures may be ignored by the fund managers-For further information please look at our separate ethical funds page.

Commodity Funds
Most people when they hear the word commodity think Gold, the reality is commodities covers everything from rice to oil to coffee and even water-please read our section on Commodity funds.

Shariah Funds
This market is fast becoming part of mainstream investments, following a strict set of Islamic rules all shariah funds can now be accessed via Oyster Bay

Equity Funds
Investing in global equity markets, you can choose from a single country or a single market sector or to reduce the risk choose a fund that has exposure to multiple markets and sectors-there are literally thousands to choose from.

Actively-managed funds -
Actively-managed by portfolio managers, they research the vast investment universe and then pick and purchase things that match their investment strategies. Usually, they're trying to outperform certain indexes. For example, instead of trying to track the FTSE index, an active UK stock fund manager tries to beat it.

How to Choose a Mutual Fund
The average mutual fund investor tends to fare significantly worse than the average mutual fund. How so? Well investors tend to let their emotions get the best of them - and dash in and out of funds at precisely the wrong moments. You know how it goes -- you want to buy when the market is hot and sell when it's going to pieces. If you simply create a well-diversified portfolio of stock and bond funds and left them alone, you'd be much better off.

So there we saw a few of the many offerings, it's now down to yourself and your adviser to select what suits you or you could consider our actively managed portfolio Oyster Bay Managed Portfolio Service, use our risk profile and review the results, consider talking with us directly and then we can propose a mix of assets to suit your criteria.

With over 5600 funds available we can help you look at the options available. Please also use our risk analysis profiler- this will help you in your thought process.