Three Types Of Mutual Funds

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“A major form of institutional investment is the mutual fund. Mutual funds come in many varieties. In the United Kingdom there are three broad types. These are investment trusts, unit trusts, and OEICs (Open-Ended Investment Companies – pronounced ‘oiks’).” (Redhead 2008: 163) Unit trusts, investment trusts and OEICs are all forms of mutual fund in which investors are allowed to spread investments for a small money outlay. In this way, retail investors can enjoy the reduced risk benefits brought about by well diversified portfolio. These mutual funds provide administration of the investments on behalf of the investors. Unit trust, investment trusts and OEICs are all connected since they all are mutual funds, they all benefit the profits of…show more content…
The money of the fund is not restricted to investment in only one security but it can be invested in different securities. There is an old saying: Don’t put all your eggs in one basket. This is done to reduce the risk that would rise if the all the fund money was invested in one security. If one invest most of savings in one security due to tremendous gains in that security then he/she is exposed to any risk that faces that investment. A risk of price fall is always there, but losses on some investment with the help of diversification is off set by the gains on others. Also the returns from all the three funds come in two main forms. The first one is the dividend or interest income in which all investors receive an income that depends on the percentage of their investment and the other is increase in the price of the…show more content…
In unit trusts, the value of unit is directly determined by the value of the investment in the fund. The total value of the units in the fund is equal to the total value of the investment in the fund. That is to say the value of a unit in unit trust fund is equal to total value of investment divided by the total number of units issued. On the other hand, the prices of investment trust shares are determined by forces of demand and supply. The value of an investment trust is pulled by such forces away from the value of investments that the company holds. Net Asset Value (NAV) is the market value of all the assets held by the investment divided by the number of shares issued. Investment trust is said to be trading at a discount if the share price is less than NAV and trade is at premium if the share price is higher than NAV. The forms of mutual funds discussed on this essay, unit trusts, investment trusts and OEICs share many advantages that attract many retail investors to invest in such products. The following are some of the reasons to why these three products are favored by such

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