A mutual fund is a professionally managed company that collects money from many investors and invests it in securities such as stocks, bonds and short-term debt, equity or bond funds and money market funds.
Mutual funds are a good investment for investors looking to diversify their portfolio. Instead of betting everything on one company or sector, a mutual fund invests in different stocks to try to minimize portfolio risk.
The term is typically used in the US, Canada and India, while similar structures around the world include the SICAV in Europe and the open-ended investment firm in the UK.
What is the power of composition?
For many, the power of composition seems like a difficult topic. But this is not the case. We will help you understand it in a simple way.
Suppose someone invested € 10,000 @ 8% p.a. The interest for the year would be €800. However, when interest is reinvested in the same investment, the gain the following year would be derived on the original investment of Rs. 10,000 and the additional investment of €800. This means that the gain for the second year would be € 864. As the years go by, interest in the year continues to increase as there is an additional investment every year.
How much money would be accumulated after a certain period of time if the returns were reinvested? See.
Investment:€ 1.100,000
Rate of return: 8% p.a.
The table above shows some interesting reasons. As the investment is maintained for longer periods, the gain continues to grow faster. While the gain in the first 5 years was €0.47, the same for the subsequent 5-year period was €0.69 (€2.16 – € 1.47). The gain in the 21st year – just one year – was € 0.37
.
“With the passage of time, earnings do not multiply, but grow exponentially.”
Essentially, capitalization is the process of earning on your main investment plus the income earned – even income starts earning as the same is reinvested.
