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What is a Mutual Fund?


Besides the Hedge Fund , there are also a number of other types of investment funds such as Mutual Funds and ETFs that are very popular in Vietnam. Today, let's find out with what is a mutual fund ? Check out the article below.

What is the definition of Mutual Fund?

So what is a mutual fund ? - Mutual fund also known in English as Mutual Fund is a term used to refer to a type of collective investment. In which, the capital that the fund owns is mobilized from the public. When a certain amount of capital is reached, the money raised will be used to invest in buying a large amount of bonds, securities , commodities, etc. What is a Mutual Fund? What is a Mutual Fund?

The value of a mutual fund depends on the rise and fall of bonds and stocks at different stages in the market's trend.

Therefore, in order to gain profits and avoid unwanted risks, investors need to closely monitor the financial statements of each stock of companies operating under the model of mutual funds. support.

Mutual funds were founded and operated by a team of leading experts in the field of economics and finance. They will be responsible for analyzing, researching and evaluating the market to make accurate decisions in choosing investment items from the mobilized capital.

When a company owns many stocks at the same time, it also means that investors are authorizing a third party to secure capital at a low cost. Not only that, these mutual funds will help investors avoid the risk when the stocks (stocks) in which these companies invest their money slip.

An illustrative example to make it easier to understand, when you invest in Amazon stock by yourself, if unfortunately one fine day the stock chart is flooded in red and Amazon's stock code is the same, you probably won't. risk of loss can be avoided. However, investing in a mutual fund will help reduce this loss for you with the same amount of investment, because Amazon's ticker is only one of a small part of the categories that the This mutual fund company pours investment capital. At that time, fund companies besides Amazon also owned Apple, Tesla, Microsoft, etc. because they have a huge budget to allow them to spread their portfolio without putting all their eggs in one basket.

Fees in the Mutual Fund model

Through the first part, you must have easily understood and understood more about what is a mutual fund ? So let's go deeper into the model of this fund. : Types of expenses to be paid by Mutual Fund : Types of expenses to be paid by Mutual Fund

There are several fees in mutual funds that make up a complete mutual fund. These can be mentioned as: Marketing fees, distribution of shares to shareholders and service fees...

Marketing and sales expenses

Is the bonus (commission) paid to the side of the broker. This means net worth plus marketing fees per share, and it is an integral part of a mutual fund. This cost will be included in the amount invested by the shareholders.

Charge the burden on your back

There are some mutual funds that will charge this fee. This amount of payment is not required to be paid directly by shareholders, but it will be deducted from the profit earned before distributing profits to investors.

Fee 12b-1

A fee that must be paid annually to the stock distribution team when they provide services to other shareholders in the mutual fund. This type of 12b-1 expense  will be gradually deducted from the investors' initial net worth.

Management fee 

This cost will be paid to the staff, management or sponsors of the mutual fund. In addition, this cost can also be used to pay for the team of experts and advisors that the company hires from outside.

The management fee will have certain limits, if the investment capital is large, the fee will be reduced. The project director will be the one to set the specific fee. After that, shareholders have the right to vote to adjust this expense, but this vote can also be vetoed by the investor or the fund manager.

Shareholders' professional fees 

Shareholders also have the right to request fees for some specific management operations. For example, an investment fund will offer an annual fee to maintain an investor's retirement account.

“Shareholder transaction fees” will not be included in the expense ratio. Some funds often buy back "shareholder's fees" when investors sell shares to the public within 90 days.

Some other fees

  • Deposit fee
  • Fees for legal and audit
  • Communication fee to shareholders
  • Fees for the accounting profession
  • Trustee team fee

Class of shares in the mutual fund system

Each mutual fund will typically have multiple classes of shares. And each class of shares will have different net assets and expenses.

  • Class A : The share class has a burden fee and a small part of the 12b-1 fee.
  • Class B : This class CP must bear the selling fee. After a holding period, class B shares will move to class A shares.
  • Class C : 12b-1 fee is relatively high, marketing fee will stop for 1-2 years.
  • Class I shares : Class I shares require a fairly high minimum investment, among the top classes in the mutual fund raising model.
  • cp class R : The burden fee is not charged and the 12b-1 fee is relatively low. This type of stock is suitable for investors looking for a return in retirement.

How mutual funds work

To have a more accurate view when you understand what a mutual fund is? Let's learn about how this fund works to see if it is different from a hedge fund?

How mutual funds work

How mutual funds work

The market research and analysis team is a collection of elite people who also possess an ability to see opportunities through talking numbers. They will also be responsible for legal issues when dealing with securities companies .

Lawyers – legal advisors  each mutual fund company has its own attorney or cooperates with law firms to receive legal advice regarding the latest government policies. onion.

Read more: What is Wedge pattern ?- Features and meaning of a wedge pattern 

Common mutual fund groups

Mutual funds can also be divided into 5 by 6 and even divided into hundreds of small groups of funds within the fund company itself. In each group of funds will be divided into different funds. The purpose of this classification is to help streamline the system, thereby providing a clear view and overview of each line of securities and profits, thereby calling for investors to invest heavily.

Fixed Income Mutual Fund

Is a huge mutual fund. The aim of this fund is to earn interest on investments on a stable basis over time. The fund will target government and corporate bonds , purchasing the debt for periodic interest.

Index Fund

Index funds are suitable for investors who dare to play big and are not afraid of risk . Investment strategy is not based on technical analysis, but mainly based on market news and beliefs of investors .

Compared to fixed-term mutual funds, index funds are somewhat riskier, but higher risk means higher returns.

Some other types of mutual funds

  • International Market Fund
  • Industry Mutual Fund
  • Equity mutual fund
  • Mutual funds buy shares from other funds
  • Exchange Traded Funds
  • Trust fund for investment units

Mutual funds are divided into 3 holding groups based on the amount of capital: small, medium, and large. After that, it will be divided according to the growth rate, profit earned. Each type of stock such as domestic stocks or international stocks will be in different groups.

The bond fund is divided by interest payment term: short-term, medium-term and long-term. Fund corporate bonds or government bonds will fund the private group.

What are the benefits of investing in mutual funds?

To be able to make investment choices in mutual funds, investors need to have a clear understanding of the benefits that mutual funds can bring and the risks that investors are inevitably exposed to.

What are the benefits of mutual funds? What are the benefits of mutual funds?

No experience needed: Your job is just to put money and capital into an investment package that fits your budget. The rest was taken care of by the fund company. They will be responsible for the money that you have spent and must bring profits to your shareholders.

Diversify investment fields:  Not putting all your eggs in one basket is the core principle when investing in any field. When participating in a mutual fund, you will diversify your investment portfolio, thereby optimizing profits and minimizing risks.

However, the benefits also come with the risk that you have to choose a reputable unit to entrust your money and need to monitor the annual reports they send, avoid investing in scam investment funds. (scam) when you see that they promise huge interest rates, remember that the bank interest rate is 8%/year if the mutual fund promises to pay 10 -20% profit a month, it's best to avoid it .

At the same time, when participating in a mutual fund, the management costs are often quite complicated, there are some funds that collect a lot of different fees, so you need to be smart to avoid losing unreasonable and unnecessary expenses.

Mutual Funds in Vietnam

In Vietnam, mutual funds are operating with many reputable names. You can consider pouring capital into some of the following funds: (Finnews24 does not accept any costs to promote, so the evaluation here is fair)

  • VCBF
  • VF4
  • TCEF
  • VEOF
  • MBVF
  • VIC Impact
  • Vinassa Angels Network
  • Angel 4 Us
  • Hanoi Young Business Association
  • ỊM Invetsment Partners
  • IDG Ventures Vietnam