Things Every Investor Should Know About Bond Funds:
Following are few things that every investor should know about Bond Funds:
Diversity is the key to success when it comes to Investment Funds. Bond Funds offers the element of diversity to its investors. There are different types of Bond Funds available in the market which includes Government, Corporate, Inflation-Protected and Mortgage-Backed Bond Funds. The investor is free to choose the type of Bond Funds they want to go with.
Easy to Sell:
While entering the stock market, every investor thinks about the safe exit as well. There are a lot of investment funds that do not allow the investor to quit whenever they want. However, Bond Funds standouts them all and are very easy to sell, which means that the investor can sell their shares and exit the market.
Risk of Interest Rates:
In most types of investment funds, the interest rate rises as the price of the share rise, however, not in Bond Funds. The interest rate has a reverse relationship with the price of the share which means when the price of the share increases, the interest rate goes down.
Although Bond Funds are easy to sell, there is a risk in it as well. When someone plans on selling his share, he will revive the current NAV of the share i.e. the total value of Funds Holding which is divided by Total Number of Fund Shares. If the current NAV is lower, then the day you bought it, you will be in loss.
9. Stock Funds:
A Stock Fund also known as Equity fund is type of investment fund that lets the investor to invest in the stocks. Stock Fund is similar to Bond Fund. People who want to invest but not directly by buying a stock from the stock market, prefers to go with Stock Funds. Stock Funds are also managed by the fund managers.
What is Stock Fund?
Stock Funds are directly related to each other. Investors who prefer to invest in stock but by investing in pool funds collected by other investors are inclined towards Stock Funds. Stock Funds are managed by fund managers, who invest the investors' money in the Stock Market (Kang, 2010)
Why Stock Funds?
Stock Fund is the perfect investment option for people who want to invest in long term benefits. Stock Fund offers long term growth rather than only focusing on the income. Fund manager finds the Stock that has most rapid growth in the market and then invests the pool of investments in that specific Stock (Kang, 2010).
Things Everyone Should Know About Stock Fund:
Following are few things that every investor should know about Stock Funds.
Increase in Cash Dividend:
Investing in Stock Fund is not only beneficial in long run but there are short terms benefits as well. The profit of Stock Fund not only increases every year, but it also increases the cash dividend which makes it one of the best type of investment funds to invest in (Jay D. H., 2013).
Investment diversification is also a key factor of Stock Fund. Diversification allows the investor to invest in more than one thing, which means he will get benefits from more than one thing. Stock Fund completely fits this requirement of the investors all over the world.
Talking about the letdown of the Stock Fund, one cannot ignore price fluctuation. There are different types of Stocks in the market and unfortunately all of them lack in stable price. There are different market factors which leads the Stock Fund price to fluctuate every now and then.
Tax and Fees:
A common drawback which is almost part of every investment fund is tax and fees. Since Stock Fund is managed by fund managers, thus you have to pay heavy fees. Moreover there are other fees that every investor of pool funds has to pay every year which reduces the yearly profit.
10. Alternative Investment Funds:
Alternative Investment Fund is different type of investment fund. It is not one of the conventional type of funds, such as Bonds, Cash and Stocks. Basically an Alternative Investment Fund can invest in everything, in fact many Alternative Investment Funds invest in (or with) automated trading strategies and in derivatives investment vehicles.
Some Alternative Investment Funds even have banks issuing special derivatives for their investment. There are different limited AIFMD (Alternative Investment Fund Managers Directive 2011/61/EU) regulations of investments due to the complex nature of the Alternative Investment Funds which is why they are slightly more popular as compared to other type of investment funds.
What is Alternative Investment Funds?
The term "Alternative Investment Funds" due to its complex nature is defined as Investment Product. Alternative Investment Funds differs from other types of investment funds in terms of low correlation, use of huge variety of techniques and dynamic strategies of trading. The special features of Alternative Investment Funds makes it popular among different types of investors (Archerselevators, 2015).
Asset Management World:
Recently Alternative Investment Funds has captured the spot light in the world of asset management since the interest rate has increased the correlation between Bonds and Stocks.
The buzz around Alternative Investment Funds is increasing and asset management has offered dedicated information about Alternative Investment Funds (AIF) as the distinct class (Insight, 2014).
AIF and Fund Managers:
One of the most important thing about AIF is to channel the investment flow. Since AIF are managed by fund managers, which is why it is important for them to make sure that investment flows in different but huge range of opportunities.
To meet the needs of the client, it is important that fund managers of AIF must be ready to adopt flexible operating and business models (Mellon).
AIF and Future:
For over three decades the industry of Alternative Investment Funds has evolved and became a very important part of global economy and financial system. The growth of AIF industry determined to range of external factors with some regulatory changes, technological development and economic cycles.
When it comes to future of AIF, it is also affected by macro factors, monetary policy and ageing in some of the developed economies (Forum, 2015).
Forex managed Funds, for example, are under the category of AIF. As most Forex is not traded at regulated Exchanges, Forex Fond Manager can basically make every price for the customers or his Forex Fund.
The development of Forex Fund is totally in hands of (unregulated) Broker and (unregulated) Exchange, while every Dollar which the investor loses, the Broker and Exchange wins.
This is even written in terms of most Forex Managed Funds, if they are sold in a regulated country like USA. If an Investor invests in a Forex Fund in a non-regulated (or nearly non-regulated) country, the investor is totally in hand of the Forex Fund Operator.
For example, they bought some Stocks and they hedged (secured) the Stocks with options against losing in value; it is one of hedge fund strategies.
In the '80s, many Hedge Fund Managers were able to have magically outstanding results even when the market was down.
Other types of AIF are Commodity Funds, which invest in exchange-traded commodities like Softs (Wheat, Corn, Hog, Milk, and Cattle), Metals (Iron-Ore, Gold, Silver, and Copper), Energy (Crude-Oil, Heating-Oil, Gasoline, and Natural-Gas) or even exotic things like Volatility.
11. Exchange Traded Funds (ETF)
One of the lowest risk carrying type of investment funds is Exchange Traded Funds, commonly known as ETFs or ETF Funds. The popularity of the ETF Funds has increased to a huge amount in last decade and it still garbs the attention of the investors. There are lot of factors involved in the popularity of ETF Funds which includes their simplicity (Calicchio).
What is ETF Funds?
ETF (Exchange Traded Funds) is basically a security that tracks bonds, index, commodities or even a pool of assets. ETF Funds trades more like a common stock. The prices of ETF Funds do fluctuate the entire day i.e. the day it is bought or sold. It is known as attractive alternative, among the individual investors.
Why ETF Funds?
The reason people prefer to go with ETF Funds is that, in comparison to the index or mutual funds, ETF Funds are fairly less expensive. Moreover, there is no need to frequently manage the ETF Funds like other regular funds which is why the investor usually ends up paying less amount of fees to manage ETF Funds (Whelton, 2013).
Things Every Investor Should Know About ETFs:
Following are few things that every investor should know about ETFs (Exchange Traded Funds):
The best thing about ETF Funds is that they are extremely transparent. Investors have an idea of what he should expect with ETF Funds. The fact that the price of ETF Funds will keep on fluctuating entire day remains true. The investors of ETF Funds do not get unpleasant surprises at the end of the day.
ETFs are usually available in almost all the sectors which includes the precious metals (metal ETF) Health-Care, Oil & Gas and so on. The easy availability of ETF Funds is one of the key factors behind its huge popularity.
Can be limited to Large Companies.
There are some countries where the investors have a limitation of the large cap stocks due to the narrow stock in market index which means that only large stocks will be able to limit available exposure to small or mid-cap companies. This can result in making ETF Funds out of reach for some investors.
There are some ETF Funds which are double or sometimes of triple leverage, that can possibly result in losing double or even triple tracked index. If ETF Funds are helpful for more than one day, there are lot of chances that the investors have to bear double or triple loss.
12. UCIT Funds
The UCIT (Undertakings for Collective Investment in Transferable Securities) Funds, are the type of funds which are licensed for the Swiss as well as European Investors under harmonized regulatory regime.
What is UCIT Funds?
UCIT Funds is basically a framework of European Commission which creates harmonized regime all around the Europe to manage and for the sale of the mutual funds. UCIT Funds are to be registered in the Europe. However, the investor can sell them worldwide by using the unified regulatory as well as investor protection requirement.
Things Every Investor Should Know About UCIT Funds:
Following are few things that every investor should know about UCIT Funds:
UCIT Funds is a good investment option to go with for retail investors around the globe, since the standard of the disclosure remains intact and investment guidelines for funds also remain on a consistent level.
Even though UCIT Funds constrains the investor to a certain extent when it comes to make their own choice of investment to go with, however, the strategies that are able to fit with requirements are extremely transparent under the EU laws.
Investment today is one of the few ways that can help everyone to deal with the inflation. Inflation devalues your money every year. To completely outpace the inflation, one needs his money or savings to grow fast (Kane, 2014).
When it comes to objective of earning, the main focus is on improving the quality standards of your life. Investment is a decision that you make to put some part of your money or income aside, so that you can get something out of it in future (Dampier, 2015)
As investment is more about your future, no one wants to leave any stone unturned. People tend to go at length to secure their future and for which they need to make better decisions.
It is strongly advised to European investors to only invest in UCIT funds or funds which are "Tax Transparent" according to their countries legal and tax systems. Many European countries have punishment taxes for investments in non-tax transparent funds.
In addition to this, many non-European countries like US have a withholding tax for foreign investors under which they keep some percentage, for example 30%, of the dividends.
This withholding is only paid to investors who make a tax declaration in these countries, for example to receive the US withholding tax back (or at least a part of it) you would have to hire a US tax advisor and pay between 1000 to 2000US $ to get a part of the withholding tax back. In many cases it is not just about the 1000 USD but more about the work associated with it.