How does mutual fund work?
A mutual investment fund (mutual fund) combines the money of different investors to collectively invest them in some financial instruments: stocks, bonds, real estate or others.
You can buy a share in this portfolio. Or several shares — their number depends on the price of the share and the amount you have deposited.
The share can be sold, bought or mortgaged. Ideally, its price is increasing every day. After some time, you repay the share more expensive than you purchased, and receive income.
The funds of the mutual fund are managed by a special financial organization — a management company (CC). It decides which securities or other assets to purchase, when to buy them and when to sell them.
What are mutual funds?
The main characteristic of a mutual fund is the direction of investment. Some choose stocks, others — bonds, others — currency, real estate or art objects. Many mutual funds combine assets of several types at once.
Funds for experienced — qualified — investors can invest money in almost any assets. Mutual funds for retail (unqualified) investors direct funds to the least risky financial instruments.
Mutual funds also have different terms of sale and purchase of shares.
Open-ended funds invest, as a rule, in liquid assets, that is, in those that can be quickly sold at a fair price. For example, in securities, which are always in demand.
Exchange-traded funds usually repeat the structure of one of the exchange-traded indices, for example, the Mosbirzhi government bond index or the RTS index. That is, they invest money in the same assets and in the same proportion as in the selected index. These are always the most liquid instruments that can be sold on the stock exchange instantly. You can read more about the features of these mutual funds in the article "Exchange-traded funds, or ETFs: what is it and whether it is worth investing money in them."
Interval and closed-end funds invest money in less liquid assets. There are more risks, but the profit may be larger.
What are the advantages of mutual funds?
How much is the share?
The share price changes every day and directly depends on the value of the assets in which the funds are invested. The goal of the management company is to invest your money so that this value is constantly growing. It is the increase in the share price that will bring you income when you decide to sell your shares.
When buying shares, you also pay a surcharge, in fact, a commission. Its maximum size can reach 1.5%, depending on the volume of investments and on the agent through which you buy. And when selling a share, its price is considered at a discount. It depends on the period of ownership of the shares and the conditions of the agent through whom you repay the share, but does not exceed 3% of the total cost.
What tax should I pay on this income?
It depends on when you bought the shares, how quickly you decided to sell them and how much you earned on them.
If you bought shares of open mutual funds after January 1, 2014, owned them for more than three years and the income received turned out to be less than a certain amount per year, you do not need to pay personal income tax.
In other cases, you will have to deduct a tax, the amount of which will depend on your total income for the year. If you earn more, including on investments, the personal income tax will be 13%. From the amount of income that will be higher, you will need to deduct 15% to the tax service. You can read more about the personal income tax rate in the text "What taxes the investor pays".
Where can I buy and sell shares?
You can buy shares directly from the management company, from an agent organization (most often a bank) or through a broker on the stock exchange. In the same way, you can sell shares.
What am I risking?
As they say, those who do not take risks do not receive income from the share.
Main risks:
I decided to invest in a mutual fund. How to do it?
1. Decide which fund is right for you
2. Compare different mutual funds:
Detailed information about mutual funds is available on the website of the National Association of Stock Market Participants (NAUFOR). There you can see which management company manages a particular fund, as well as compare the profitability of mutual funds for a period from a week to five years. In addition, there is a filter on the site that allows you to compare funds of a certain type with each other – for example, only open or only interval funds.
3. Find out everything about the management company of the selected mutual fund
What should I do if the management company violates my rights?
If you believe that your rights as an investor are being violated, file a complaint with the Bank. This regulator controls the work of all financial institutions, including mutual funds and management companies.
A mutual investment fund (mutual fund) combines the money of different investors to collectively invest them in some financial instruments: stocks, bonds, real estate or others.
You can buy a share in this portfolio. Or several shares — their number depends on the price of the share and the amount you have deposited.
The share can be sold, bought or mortgaged. Ideally, its price is increasing every day. After some time, you repay the share more expensive than you purchased, and receive income.
The funds of the mutual fund are managed by a special financial organization — a management company (CC). It decides which securities or other assets to purchase, when to buy them and when to sell them.
The main characteristic of a mutual fund is the direction of investment. Some choose stocks, others — bonds, others — currency, real estate or art objects. Many mutual funds combine assets of several types at once.
Funds for experienced — qualified — investors can invest money in almost any assets. Mutual funds for retail (unqualified) investors direct funds to the least risky financial instruments.
Mutual funds also have different terms of sale and purchase of shares.
- Open funds
- Exchange-traded funds
- Interval funds
- Closed funds
Open-ended funds invest, as a rule, in liquid assets, that is, in those that can be quickly sold at a fair price. For example, in securities, which are always in demand.
Exchange-traded funds usually repeat the structure of one of the exchange-traded indices, for example, the Mosbirzhi government bond index or the RTS index. That is, they invest money in the same assets and in the same proportion as in the selected index. These are always the most liquid instruments that can be sold on the stock exchange instantly. You can read more about the features of these mutual funds in the article "Exchange-traded funds, or ETFs: what is it and whether it is worth investing money in them."
Interval and closed-end funds invest money in less liquid assets. There are more risks, but the profit may be larger.
What are the advantages of mutual funds?
- Availability
- Professionalism
- Likely high income
- Low costs
- Liquidity
- Preferential taxation
How much is the share?
The share price changes every day and directly depends on the value of the assets in which the funds are invested. The goal of the management company is to invest your money so that this value is constantly growing. It is the increase in the share price that will bring you income when you decide to sell your shares.
When buying shares, you also pay a surcharge, in fact, a commission. Its maximum size can reach 1.5%, depending on the volume of investments and on the agent through which you buy. And when selling a share, its price is considered at a discount. It depends on the period of ownership of the shares and the conditions of the agent through whom you repay the share, but does not exceed 3% of the total cost.
What tax should I pay on this income?
It depends on when you bought the shares, how quickly you decided to sell them and how much you earned on them.
If you bought shares of open mutual funds after January 1, 2014, owned them for more than three years and the income received turned out to be less than a certain amount per year, you do not need to pay personal income tax.
In other cases, you will have to deduct a tax, the amount of which will depend on your total income for the year. If you earn more, including on investments, the personal income tax will be 13%. From the amount of income that will be higher, you will need to deduct 15% to the tax service. You can read more about the personal income tax rate in the text "What taxes the investor pays".
Where can I buy and sell shares?
You can buy shares directly from the management company, from an agent organization (most often a bank) or through a broker on the stock exchange. In the same way, you can sell shares.
What am I risking?
As they say, those who do not take risks do not receive income from the share.
Main risks:
- Investments are not insured
- Income is not guaranteed
I decided to invest in a mutual fund. How to do it?
1. Decide which fund is right for you
- For how long are you ready to invest in a mutual fund?
- What risks are you ready for?
2. Compare different mutual funds:
- in terms of profitability for different periods of time – it is better not for one year, but at least for 3-5 years;
- by the assets they invest in;
- according to the allowances and discounts they take when buying and selling shares;
- in terms of the amount of funds raised and the value of net assets.
Detailed information about mutual funds is available on the website of the National Association of Stock Market Participants (NAUFOR). There you can see which management company manages a particular fund, as well as compare the profitability of mutual funds for a period from a week to five years. In addition, there is a filter on the site that allows you to compare funds of a certain type with each other – for example, only open or only interval funds.
3. Find out everything about the management company of the selected mutual fund
- Check her license to manage mutual fund funds on the Bank 's website . There you can also read the regulations that regulate the activities of management companies.- Study in which instruments the Management Company invests the funds of the selected mutual fund. The investment declaration should describe possible assets, restrictions on their choice and risks.
- Find out the amount of remuneration of the Criminal Code and other expenses that are paid at the expense of the fund's property.
- A higher remuneration will be justified only if the value of shares under the management of this CC is growing faster than in other similar mutual funds.
What should I do if the management company violates my rights?
If you believe that your rights as an investor are being violated, file a complaint with the Bank. This regulator controls the work of all financial institutions, including mutual funds and management companies.