How to invest series - much ado about mutual funds (Infographic)

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You know about investing in securities such as stocks (equities), treasury bills and bonds You've read articles, attended workshops, had conversations with friends But you're really not the type that enjoys a lot of research and sometimes too much information diminishes your learning returns So, you wonder? 'How can I invest without getting into the nitty details of knowing what company is doing well, what company is not doing well, what interest rate a bank is offering and all other required information? Well, a mutual fund might just be the investment option for you. Mutual funds are one of the easiest investment vehicles to invest in with good reason too... Defined simply, a mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities such as stocks, bonds, money market instruments or some combination of these assets Key phrases to note in this definition are; 'professionally managed' (This means it is managed by a trained and experienced wealth fund manager or investment banker) 'pools money from many investors' (Mutual funds give small investors an opportunity to gain access to professionally managed funds that invest in selected securities.) It sounds like a really big investment club but it's not. That's because it is professionally managed.     So, how do mutual funds work? Mutual funds provide you an opportunity to purchase shares or units from a managed fund. You become a mutual funds shareholder when you purchase shares or units from the fund and participate equally in shared gains and losses. You may not want to get into the details but you should always pay attention to the specific securities a fund invests in before you make a purchase decision. Some mutual funds invest only in stock (equities) or invest only in fixed income securities (treasury bills or bonds). Some mutual funds do a mix of securities. There are also ethical funds who invest based on a particular value system. Equity funds earn more interest but are risky in nature. Bond funds are safe but may not earn as much interest compared to equity funds. A mix of securities might provide a balanced fund. It's important to know what a mutual fund invests in before you purchase units. Your choice of fund should be directly related to your risk tolerance levels or value system. For instance, I purchased units of a mutual funds for my daughter. My choice was a mutual fund that invests strictly in fixed income securities. My reasons were;

• She's young (7 years old).  She still has a lot of years to go before she becomes an adult.
• She needs a safe investment product so her funds are not eroded before she is old enough to claim it

Funds that invest in riskier securities provide higher returns, however they come with higher risk. This means  funds invested can lose value when there's a bad turn in the market Some key terms to note Open-end fund vs close-end fund A mutual fund can be an open-end fund or a close-end fund. An open-end mutual fund sells shares or units of the fund on a continuous basis. A shareholder can easily purchase or redeem shares at any time. Closed-end funds sell a fixed amount of shares on a one-off basis (most times at inception) and trade later in the secondary market. Front end load vs Back end load1 The front-end load is a commission or sales fee that you pay when you make an initial investment. For example, if you invest N100,000 in a mutual fund with a 2% front-end load, you will end up paying N2,000 in fees, leaving you with a N98,000 investment. The back end load is a commission or sales fee that is incurred upon the sale of your investment. Always ask about the load on a mutual fund before you invest. Keeping your costs low is a great way to earn better returns. What are the benefits of investing in mutual funds? Mutual funds require no experience or knowledge of economics, financial statements, or financial markets to be a successful investor. They are great for beginner investors who want to get into the mix of investing with no hassles Another great advantage is it provides easy access to a diverse fund. For some of us who do not have a large amount of money to buy a diverse portfolio of stocks and bonds. Investing in a mutual fund solves that problem. It spreads your money across multiple investment options to reduce the risk of you being wiped out by any single bad deal. and finally, you can easily purchase mutual funds from any asset management company or investment bank in Nigeria. Learning how to make investment decisions can be complicated sometimes. That's why mutual funds are great. You don't need to do a lot of research You can start investing simply by making a call to an asset management company and purchasing units of a well managed fund right away. What are you waiting for?