Reviewed by Aug 27, 2020| Updated on
What is Fund Trading?
Trading mutual and investment funds are different as compared to stock trading. Mutual funds are professionally managed portfolios that pool money from multiple investors and sources to buy shares of stocks, bonds, or other securities. When you buy or redeem a mutual fund, you are directly purchasing and selling with the fund, whereas with ETFs and stocks, you are trading on the secondary market.
When you initiate a trade to buy or sell mutual fund shares, it will be executed at the next available net asset value (NAV). This net value will be calculated once the market is closed for the day; the price may go higher or lower than the previous day's closing NAV.
What are the advantages of Fund Trading?
- Fund trading is a simple process. It needs no experience nor expertise to buy and sell mutual fund units.
- Buying and selling mutual funds is easy and can be done at brokerage firms, mutual fund companies, online broker sites, and other venues.
- It helps the investor gain market exposure and diversify the investment portfolio to balance risk.
Anybody can afford to trade funds as the minimum initial investment standards are low and affordable.
Who should consider it?
Fund trading is suitable for those who actively take part in analysing the market and switch between funds.
- The extent of risk an investor wants to take determines what kind of returns they can earn from fund trading. Those who are willing to make high profits may want to try trading high-risk funds.
- Depending on an investor's current financial situation, income from mutual funds can have a serious impact on an investor's annual tax liability. Returns received from fund trading together with the income from salary or other sources can impact the taxes to be paid. Therefore, one must carefully pick the funds.
The Indian mutual fund houses are expanding their activities beyond the borders of the nation with new schemes. In the liberalized world economy, the Indian mutual funds are looking for opportunities to invest their funds in other countries capital markets.
Some funds are only concentrating on Asian countries opportunities since these countries economies are growing at a rapid pace. While the other funds are going global to cash every opportunity available in the world. By trading with offshore companies, these funds are enabling the investors to invest their funds in global capital markets.