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Mutual Funds Part 1

28 May 2012

Hi All

Following on from our recent board meeting.  It was suggested we should keep our blogs more relevant and less about restaurant reviews!  When we first launched Broadgate 360 the idea of the blog was to keep things very social from our employees perspective and use our News Feed for more relevant information.

As our company continues to grow and head towards the vision of being ‘The Leading Boutique Private Investment Bank in South East Asia” we have to start introducing socially relevant blogs.

So as we aggressively charge forward into Q3 I’ve primed all personnel to start think about compiling a socially relevant blog.

What does he mean by socially relevant? – I hear you say.

I mean to maintain the integrity of the blogs – Informative, Entertaining and Educational.  Not some boring report on the state of the economy.  If you are looking for that please refer to our news feed.

Anyway, here is my attempt of writing a socially relevant blog; ‘Simple Simon’s’ guide on Mutual Funds.

So, what is a Mutual Fund?

Its an investment scheme where many people pool their money collectively to purchase securities.  Its managed by a professional investment manager who charges a fee for his / her services in administrating and managing the performance of the fund.

Where did it come from?

Mutual Funds originated in 1774 from a Dutch merchant by the name of Adriaan van Ketwich who thought that diversification would increase the appeal of investments to smaller investors with minimal capital.  He subsequently created a fund called Eendragt Maakt Magt or Unity Creates Strength.

That all sounds great, but whats the advantages of investing in a mutual fund?

There are a number of reasons why you may choose to invest in a mutual fund and here are some of them:

  •  Service and convenience – If your like me, who doesn’t have the time or knowledge to research markets a mutual fund maybe the ideal vehicle for you to invest in taking away the time and worry of having to do it all yourself! – Perfect!
  • Going on from that – Professional investment management.  Leave it to the people who have a proven track record to deliver positive returns.
  • You get to invest in things that maybe only available to larger investors.
  • Increased diversification thus spreading the risk
Ok great!  but hold on a minute what about the disadvantages?
There’s me thinking I nearly sold you on the idea of mutual funds!  There are none!  No, I’m joking of course there’s disadvantages:
  • Its not tailored to the individual – If your like me, you would like your suits tailor made! And that also rings true for investments.
  • The returns are less predictable – I always like to know how much money I’m going to be making but in the investment market thats not always the case.
  • Fees – Who likes paying fees? – I generally don’t mind paying them if the performance and returns justify it.

Now there have been some controversy surrounding Mutual Funds – critics saying the fee’s are too high, the market is not competitive and there are hidden charges.

A counter argument being a highly competitive market reflects the value of the service provided and that all fee’s are fully disclosed.

Whats the formula used to calculate the average annual total return?

P(1+T)n = ERV

Ok I added that last question in there for some comic relief but most of you are probably scratching your heads over that.  So I suggest you to come in and spend some time with our specialist consultants, where they will run through all the features and benefits of a Mutual Fund and what is currently available.

Joking aside, I hope you found at least some of my blog had value to you.  I really have just touched the surface of Mutual Funds and you shouldn’t consider this article an offer or solicitation to invest in such.

Please stay tuned for part 2 where I’ll talk about Thai Mutual Funds.

 

Simon Osborne

Vice President

simonosborne@broadgatefinancial.com