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Ordinarily, to invest successfully, you require time. Time to select your portfolio of investments carefully and time to monitor them on a continual basis to ensure adequate performance. Most investment professionals and portfolio managers suggest you also need a significant amount of money to be able to diversify on your own; that is to buy a variety of stocks, bonds and other investments to spread the risk and increase opportunities for greater returns. However, through the purchase of mutual funds, successful investing can be realized with much less time and money. In Canada, there are more than three thousand mutual funds available, each designed to meet a specific investment objective. There are high-risk growth funds, conservative funds, and specific funds that fit just about any investor. However, they all operate on the same principle. You, along with many other investors, pool your money. Then a professional investment manager makes decisions on what to buy and sell based on the fund's objectives. If you wish to minimize short term volatility (the fluctuations in value of your investment), you'll probably select funds that invest in government backed treasury bills, bonds or mortgages. If you are looking for growth potential and can tolerate volatility, consider equity-based funds which would invest in shares of major corporations, or small entrepreneurial companies in Canada or around the world. There is a vast choice with risks and rewards widely varied. How a fund works Most mutual funds in Canada are "open-end" meaning that you can invest directly into them and withdraw money at any time. When you invest in a fund you receive a number of shares or units, based on the value of the fund's units at the time of purchase. Unit value, known as the net asset value per share
(NAVPS) is arrived at by taking all the assets within the investment
fund and subtracting its liabilities and administrative costs. The NAVPS
is then calculated by taking this amount and dividing it by the number
of units or shares outstanding. The price you pay for a fund unit is directly
linked to the value of all the investments in the fund's portfolio. Because
of the almost continuous movement of money in and out of a fund and fluctuation
in asset value, the NAVPS is usually calculated on a daily or weekly basis. The return you will receive will depend on the type
of fund. Returns can be based on dividends, interest or capital gains
earned on investment within the fund and also by the increase in the fund's
value by the time you sell. Markets move in cycles and the value of your
fund will fluctuate with these movements. Your return can also be negative
if you sell the fund at a unit price less than you paid. Do not be spooked by short term market drops and sell
your funds. Always consider why you purchased the fund in the first place.
If your objectives are still the same and the fundamentals of the fund
are still the same, consider adding to your position as the fund is now
"on sale." Do not however, consider just the historical rates
of return. You must also consider market directions, management styles
and the portfolio selection of various funds to ensure they match your
investment temperament
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