What are mutual funds?

According to the definition expressed in Article 3(1) of the Act on Investment Funds and Management of Alternative Investment Funds, the definition is as follows:

''An investment fund is a legal person whose sole object of activity is to invest funds collected by proposing the purchase of participation units or investment certificates in securities, money market instruments and other property rights specified in the Act''.

To put it more clearly, investment funds allow for collective investment of funds collected from participants by investment fund companies (TFIs).

Among investment funds, we can distinguish:

• open-end funds - the investor purchases participation units in exchange for a specific financial contribution;
• specialist open-end funds - these funds may invest participants' funds, for example in participation units of other funds;
• closed-end funds - investors do not purchase participation units, but only certificates that are securities.

How to invest in mutual funds?

Investing in funds is not a difficult activity. You can find a lot of online training on them in the form of learning platforms, such as the Webinar Unvierse.

The most important aspect is to think about the amount you want to spend. It should be borne in mind that the funds need to be frozen for a longer period of time and that it is not possible to use them. What is more, there is no certainty that the funds will not be lost, so the amount that is necessary for daily existence can never be allocated to the investment, but only constitutes a budget surplus.

The next step is to choose the place through which you want to invest. Publicly available online training courses indicate many places that are available for investors to choose from. It's a good idea to review several options and choose the one that will turn out to be the most advantageous in terms of service costs (transaction fees). Equally important is the intuitiveness and security of the online platform.

Finally, it is important to choose the type of fund (open-ended - FIO, specialized open-ended - SFIO or closed-end - FIZ). In addition, the funds can also be divided according to the way the capital is invested:

• cash - investment of funds in capital market solutions;
• equity - investment of funds in stock exchanges;
• debt - investment of funds in debt securities (bonds);
• Mixed - investment in different financial instruments at the same time.

Before an investor chooses a fund, it is important to carefully analyze its long-term performance. At the same time, you should be aware of the fact that satisfactory historical results do not guarantee large profits in the future. However, this is quite solid proof that the funds in question are managed by competent people.

Risk assessment

The level of risk associated with investing in a given investment fund is primarily influenced by the policy of a given solution. The Webinar Unvierse training platform directly teaches you how to assess investment risk. Despite the diversification of the portfolio, funds focusing on equities, for example, will be characterized by higher risk than those focused on bonds.

An equally important factor in risk assessment is the time horizon. The prices of individual assets on the market change quite slowly, so you should approach your investment with the assumption of waiting a certain period of time. The principle is simple - solutions exposed to higher risk should be considered in the long term, those with lower risk, considered as safer, can be considered in the context of the short term.

Investing in funds is not putting money away in a savings account, so there is always a risk of losing a significant part or even all of the funds entrusted to you. Although the funds offer the prospect of generating above-average profits, you should take into account unforeseen situations on the market that can shake various assets.

Pros and cons of mutual funds

The biggest advantage of investing in mutual funds is the diversification of the portfolio. The well-known learning platform Webinar Unvierse constantly emphasizes this principle. What does that mean? This means that not all funds allocated for the investment are allocated for one purpose. Fund portfolios are made up of many elements and the funds are divided between them, which significantly reduces the amount of risk.

The second advantage is that the investor does not have to have a lot of experience, because most of the activities are done for him by professionals. In addition, you can invest in funds even with little capital. Thanks to the fact that a given fund consists of funds of the age of investors, you can afford to participate in an investment project in which it would be difficult to realize yourself individually.

In addition to the undoubted advantages, it is hard not to notice the disadvantages in investment funds. The first one is a relatively high ratio of total costs, which, after all, reduce the profit. In addition, the funds are characterized by relatively low liquidity, so the investor is often forced to wait a long time to cash out his investment. If you decide to use this type of instrument, you should bear in mind that you will not have any influence on any decisions, as they are made by the person managing the fund.

Anyone who is faced with the choice of how to multiply their savings, ask themselves whether it is worth considering investment funds. If the investor acquires the right knowledge, for example from publicly available training platforms , and properly prepares for the venture, there is a good chance of making a profit in the long run. This solution is a good choice for people who do not have a lot of capital. To increase your chances of success, it is worth using the services of a reputable and recommended investment fund company.