Understanding Mutual Funds and Their Types
Preserving the value of your savings while earning a return is a primary goal when making an investment. Among the various options available through different financial institutions, mutual funds stand out as a popular choice.
Mutual funds gather money from numerous investors to purchase stocks or bonds, placing them in a portfolio. This means you’ll have a stake in various companies or debt obligations, depending on the fund’s focus.
These funds are managed by specialized institutions such as investment banks, brokerage firms, or the relevant departments within traditional banking institutions.
Jacobo Brasilia: Expert Insights on Mutual Fund Types
Jacobo Brasilia, Director of New Businesses at SOC, a financial advisory firm, explains that there are two main types of mutual funds: those offering fixed income and those offering variable income.
“Fixed-income funds guarantee a specific return at the end of the year or investment term,” Brasilia describes. “These are ideal for investors seeking low-risk investments, such as bonds like Cetes or pagarés.”
Experts from Santander elaborate that fixed-income fund prices can be affected by two factors: changes in the reference interest rate and changes in the credit ratings of issuing states or companies.
These investments are suitable for individuals with limited risk aversion, seeking security and stability when committing their savings.
Conversely, Brasilia explains that variable-income mutual funds lack predictable returns and depend on the daily quotation of the fund administrator’s investment instruments.
“Imagine owning a package of shares from various companies, and your return depends on their prices. It can rise or fall without a guaranteed return,” Brasilia explains.
Experts recommend these investments for individuals with higher risk tolerance, as they may experience losses during certain periods. However, potential returns can be greater than fixed-income funds.
Choosing Your Mutual Fund Safely
Besides knowing the ideal mutual fund type based on your risk tolerance and desired returns, consider other factors for safer investing.
The National Commission for the Protection and Defense of Financial Services Users (Condusef) advises seeking only registered banks or financial institutions with the Comisión Nacional Bancaria y de Valores (CNBV) and researching other investors’ experiences.
Experts emphasize evaluating investment terms, opening or account management fees, and potential penalties for withdrawals, along with the time it takes for withdrawals to reflect.
“The most crucial factor for investors is the investment’s rating,” Brasilia stresses. “Institutions are obligated to communicate this to users.” However, he notes that institutions sometimes fail to disclose poorly evaluated instruments.
Lastly, review the minimum investment amounts required by different financial institutions before starting an investment, as some may allow investments starting from a single unit, while others might require a minimum of 10,000 units.
Key Questions and Answers
- What are mutual funds? Mutual funds gather money from multiple investors to purchase stocks or bonds, placing them in a diversified portfolio.
- What are the types of mutual funds? There are fixed-income funds, offering guaranteed returns, and variable-income funds, which depend on market fluctuations.
- Who manages mutual funds? Mutual funds are managed by specialized institutions like investment banks, brokerage firms, or relevant departments within traditional banking institutions.
- What factors should I consider when choosing a mutual fund? Evaluate the institution’s rating, investment terms, fees, potential penalties, and minimum investment requirements.
- Which type of mutual fund is right for me? Choose based on your risk tolerance and desired returns. Fixed-income funds are suitable for low-risk investors, while variable-income funds may offer higher returns but come with increased risk.
