A mutual investment fund (MIF) is an effective investment tool that can be used by private investors to increase their capital. When choosing this financial instrument, each investor is guided by his own expectations and goals, however, there are general recommendations, following which the investor can choose the best investment option for himself.
Instructions
Step 1
The choice of a mutual investment fund begins with setting an investment goal. Determine the amount and duration of the investment. For example, you can invest a small amount of money and for a short period, in this case the best choice would be an open-ended mutual fund. If you are ready to invest a significant amount of money (over 100 thousand rubles) for a long time, then it is better to choose a closed or interval mutual fund. Remember that the higher the return on investment, the higher the investment risk. Equity funds and index funds are considered the most risky, but these investment instruments can bring the highest returns to their shareholders. Mixed investment funds provide an average return with a moderate level of risk, such funds diversify the investment portfolio and invest the funds of shareholders in financial instruments with different levels of risk. Bond funds provide the lowest returns at the lowest risk level.
Step 2
After you have defined your investment goals and strategy and have chosen the type of fund, you need to choose a reliable management company. One management company can work with several funds, its task is to successfully place the funds of investors in various financial instruments. The reliability of the fund depends on the reliability of the company, so only those organizations that have been working in this area for at least 5 years should trust their funds.
Step 3
When choosing a specific fund, you should pay attention to the profitability. This indicator allows only a superficial assessment of the effectiveness of the fund, however, a novice investor =, as a rule, focuses on it. To make the right decision, analyze the dynamics of the share value change over several years and compare it with the dynamics of stock indices.
Step 4
For a deep assessment of the operation of a mutual fund, you can additionally use analytical indicators. Ratings of mutual funds are based on three main ratios. The Alpha coefficient shows the average return on the fund's portfolio of securities, which is compared to the return on the reference investment portfolio. The value of a certain stock index can be taken as a standard. If this coefficient has a positive value, then the average return of the fund for a certain period exceeded the return of the index, therefore, the fund management was effective. The Beta coefficient reflects the market influence on the fund's performance. The higher this indicator, the stronger the market influence on the fund and the greater the risk of the fund's investment portfolio. Sharpe Ratio allows you to assess the effectiveness of risk management. The higher this ratio, the more the fund's return outpaces risk. A negative value of the Sharpe ratio indicates ineffective fund management.
Step 5
The value of these analytical indicators is calculated by experts on the basis of statistical data, but any private investor can find in the public domain the ratings of mutual funds indicating these coefficients.
