Three main ways you can profit from Mutual Funds

Anyone investing in a mutual fund is hoping to get excellent returns on their money. There are three main ways in which investors in mutual funds can benefit from their investments.
- Companies that issued the shares held by a fund can pay dividends
- The prices of shares and bonds held by a fund can increase in price on the open market (net asset value of the fund)
- The fund can capture and lock in such profits when the shares and bonds are sold or disposed (capital gains)
*Dividends
When a company makes a profit, it can choose to distribute part or all of these profits to shareholders. This is normally done in the form of a dividend payout. Not all companies will distribute their profits as dividends though. Typically, young growth orientated companies opt to reinvest these profits to fund the future growth of the company without resorting to debt. It is often the older, mature companies with limited additional capital needs that make regular dividend payments. Dividend payments are made to any holders of shares in the company, in this case the mutual fund. Mutual funds generally then distribute these dividends to the fund investors, in the form of additional shares.
*Net asset value or NAV.
A mutual fund’s NAV is, as the name suggests, the total value of all assets owned by the fund, less any outstanding debt. This is normally expressed as NAV for every outstanding share issued by the fund. Since the price of the underlying assets held by the fund (stocks and bonds) can fluctuate daily, so too can the fund’s NAV. The NAV for a mutual fund is reflected accordingly in the daily purchase price of shares in the fund.
For example, a fund with $1million in net assets, and 1 million issued shares, would have a share value of $1. Therefore, any new investor to the fund would have to pay $1 per share, while any existing investor selling their shares would also receive $1 for each share they sold.
The NAV is most commonly the price reflected in the listings found in the business sections of most newspapers across the globe. Most fund listings will show several pieces of information about a fund.
– the fund family. This is usually the company that owns and administers the fund. Examples include Fidelity and Prudential
– the fund name. Most mutual fund companies will have more than one fund, with different goals and strategies, and so this name identifies the specific fund within the family. Examples include, Growth, Asia, Emerging Markets, Dow
– The specific fund’s NAV per share
– Daily % Return. This is a reflection of the day to day movement in the NAV for the fund
– YTD % Return. This will reflect how the fund’s NAV has fluctuated since the beginning of the current calendar year.
*Capital Gains
By and large, capital gains reflect the changes in the asset value that have been captured through the purchase and disposal of stocks and bonds. There are many reasons why a fund manager will buy or sell additional securities and bonds. The two most common though, are changes in market conditions, and a reaction to the flow of money into and out of the fund. Capital gains profits are usually distributed to the fund’s shareholders in the form of additional shares in the fund. One of the main reasons for distinguishing the realized capital gains profits from the fluctuations in NAV, is that in many countries, the two have very different tax implications.

Anyone investing in a mutual fund is hoping to get excellent returns on their money. There are three main ways in which investors in mutual funds can benefit from their investments. - Companies that issued the shares held by a fund can pay dividends - The prices of shares and bonds held by a fund can increase in price on the open market (net asset value of the fund)- The fund can capture and lock in such profits when the shares and bonds are sold or disposed (capital gains)
*DividendsWhen a company makes a profit, it can choose to distribute part or all of these profits to shareholders. This is normally done in the form of a dividend payout. Not all companies will distribute their profits as dividends though. Typically, young growth orientated companies opt to reinvest these profits to fund the future growth of the company without resorting to debt. It is often the older, mature companies with limited additional capital needs that make regular dividend payments. Dividend payments are made to any holders of shares in the company, in this case the mutual fund. Mutual funds generally then distribute these dividends to the fund investors, in the form of additional shares.
*Net asset value or NAV.A mutual fund’s NAV is, as the name suggests, the total value of all assets owned by the fund, less any outstanding debt. This is normally expressed as NAV for every outstanding share issued by the fund. Since the price of the underlying assets held by the fund (stocks and bonds) can fluctuate daily, so too can the fund’s NAV. The NAV for a mutual fund is reflected accordingly in the daily purchase price of shares in the fund.
For example, a fund with $1million in net assets, and 1 million issued shares, would have a share value of $1. Therefore, any new investor to the fund would have to pay $1 per share, while any existing investor selling their shares would also receive $1 for each share they sold.
The NAV is most commonly the price reflected in the listings found in the business sections of most newspapers across the globe. Most fund listings will show several pieces of information about a fund.– the fund family. This is usually the company that owns and administers the fund. Examples include Fidelity and Prudential– the fund name. Most mutual fund companies will have more than one fund, with different goals and strategies, and so this name identifies the specific fund within the family. Examples include, Growth, Asia, Emerging Markets, Dow– The specific fund’s NAV per share– Daily % Return. This is a reflection of the day to day movement in the NAV for the fund– YTD % Return. This will reflect how the fund’s NAV has fluctuated since the beginning of the current calendar year.
*Capital GainsBy and large, capital gains reflect the changes in the asset value that have been captured through the purchase and disposal of stocks and bonds. There are many reasons why a fund manager will buy or sell additional securities and bonds. The two most common though, are changes in market conditions, and a reaction to the flow of money into and out of the fund. Capital gains profits are usually distributed to the fund’s shareholders in the form of additional shares in the fund. One of the main reasons for distinguishing the realized capital gains profits from the fluctuations in NAV, is that in many countries, the two have very different tax implications.

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