Mutual Funds’ Stock
Sometimes identifying the right stocks for
your portfolio can be difficult. In addition, it
may take time to accumulate the investment
capital you need to buy several individual
stocks. One attractive alternative is to invest
in mutual funds’ stock. A professional manager
runs each fund, deciding which stocks to purchase and when to sell them. Instead of owning stocks outright, you and other investors
own shares of the mutual fund. The fund pools
the money it raises by selling those shares and
uses the capital to invest across a wide range
of industries and companies, creating a large
and diversified portfolio of stocks. Each investor in the investment funds pays his investment value by multiplying the number of units
he buys in the fund by the price of the unit’s
funds.
If the fund’s performance is positive, it will affect the unit price. If your fund shares at a
value of 10 Riyals, the Fund’s performance
will affect this price either by increasing or
decreasing. For example, if a 1000 Riyals was
invested in an investment fund at a unit value
of 10 Riyals, you will have 100 units. And when
the unit price rises to 11 Riyals, this means
that you have achieved an extra Riyals per unit
100 x extra Riyal = 100 extra Riyals.
Objective and Style
Each mutual fund has a specific investment
objective that it works to achieve. One fund
may invest for growth, while another invests
for capital preservation. Some funds are highly specialized, investing only in a certain sector
of the economy, such as energy or telecommunications, or only in businesses of a specific market capitalization, such as the smallest
companies in a particular market.
Investment style refers to the strategy or approach the fund’s manager uses to choose investments. Some managers emphasize growth
potential and buy stocks they expect to increase substantially in value even if they have
a high price/earnings ratio. Other managers
emphasize value and choose stocks with low
prices in relation to their earnings.
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Mutual Fund’s Prospectus
To research any mutual fund, you can begin
with the fund’s prospectus, which is an official
document that provides specific information
about the fund. A prospectus must include
:
• Information about past performances.
• How that performance is compared to
the fund’s benchmark.
• The fund’s objective and style .
• The level of risk the fund poses.
• Fund fees, expense ratio, and sales charges
if any.
• Who is the fund manager?
• A list of the fund’s major holdings.
• Minimum investment amount.
• Days of Trading, evaluation, recovery and
participation.
Reading the prospectus can give you an idea
of whether the fund’s objective and style will
help you meet your goals, whether this risk
you are taking is acceptable to you, and how
much it will cost you to buy and own the fund.
Fund Fees and Expense Ratios
When you own shares in a mutual fund, you
pay annual fees called Administrative fees plus
,some include, a subscription fee. These fees
and expenses, which are subtracted before
earnings are credited to your account, and
vary from fund to fund.
A fund’s expense ratio is the percentage of
your account value that you pay in annual
administrative and investment fees. Trading
costs are the amounts the fund pays a brokerage firm to buy and sell shares. The higher
the expense ratio and trading costs, the more
those fund expenses decrease your earnings
on your investment principal each year.
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Stocks vs. Mutual Funds’ Stock
In summary, if you are just getting started with
investing, purchasing shares of a mutual fund’s
stock may be more appropriate than buying stocks outright. Mutual funds’ stock are
easier to research than individual companies
because a great deal of information is provided in the prospectus. Mutual funds have a
clear objective, so you can choose funds that
fit your investment strategy. Mutual funds can
also give you access to a larger and more diverse portfolio
