Saving money in mutual funds is common in Sweden, but for anyone who wants to start fundraising, or just want to review their existing savings, it may feel difficult to get an overview. Below we therefore answer four of the most common questions about saving money in funds.
Why save in funds?
Saving money in mutual funds has many benefits. As you may already know, a fund consists of collectively owned securities, such as bonds or shares. Thus, your investment as well as the risk is spread over several different securities. In addition, saving in funds is relatively easy. A fund manager selects, buys and sells securities within the fund, which means that you do not have to do it yourself.
What funds can you save in?
There are many different types of funds you can save money in. The type of fund is determined by which assets the fund invests in.
An equity fund invests at least 75% of its assets in equities, while an interest fund invests in interest-bearing securities such as bonds or treasury bills. There are also funds that invest in both equities and interest-bearing securities, these are called mixed funds.
Index funds, or passively managed funds, are funds that aim to have a development and return that is in line with the market index that the fund should follow.
Hedge funds aim to generate a positive return, regardless of how market developments look. Such a fund has freer rules on how the money may be invested than, for example, a stock fund has.
If you choose to save in a so-called fund-in-fund, the money is invested in another fund instead of, for example, shares or bonds. There are also funds that only invest in specific industries, markets and regions.
What does it cost to save in funds?
The simple answer to that question is; it depends on! How many and how much fees you need to pay when saving money in mutual funds depends entirely on the fund you are looking at.
The most common fees are the management fee, an annual fee and the fee to buy and sell your fund shares.
The management fee is to cover the fund manager’s costs for administration and management of the fund you are saving in. Sometimes an annual fee is also charged. In addition to the administration fee, it also includes the cost of, for example, counseling. The buying and selling fee is exactly what it sounds like; a fee for buying or selling unit shares.
Some funds also have something called performance or performance-based fees. It is a fee that you only have to pay if the fund achieves a certain goal. This is most common in hedge funds.
Thus, how many of these fees and how much you need to pay varies from fund to fund, so when you compare different funds it is wise to also compare their fees.
How safe is it to save in funds?
Saving in funds always involves a risk of losing the money you have invested. Therefore, when reviewing your savings, there is a recurring advice that you should always keep in mind, regardless of the form of savings; Invest only as much money as you can afford to be without.
However, saving in mutual funds entails less risk compared to saving in equities, since the spread of risk in a fund is usually greater. To spread the risk further, it can also be good to save your money in several different funds. For the different fund types that we mentioned above, it generally means a greater risk of saving money in equity funds than for example in fixed income funds, but regardless of the level of risk on the fund, in the end it is how much risk you as a saver are prepared to take that will guide your choices.
When assessing it, you should consider what you save for and how long term you save. If you want your savings to grow in the long term, you may also be prepared to take a little bigger risk. Do you know that you need access to the money relatively soon, it is wise to choose a lower risk fund.
How much time you are prepared to spend on your savings also comes into play when talking about risk. If you are willing to get a lot involved and monitor the development of the funds continuously to try to find good buying and selling situations, you may also be able to take a slightly higher risk with your fund savings. If, on the other hand, you want to spend quite a bit of time on your savings, it might be wise to save a month. Then you buy unit shares continuously, regardless of market situation, and thus do not need to keep an eye on when it is good or bad buying situation.
Invest your money with Viola
An alternative to fund saving is to invest your money with Viola. With low risk and high returns, you lend money to creditworthy individuals through our digital platform. If you save in the short term, you can get your money paid out once a month. If you want a longer-term savings, you can choose to reinvest the money in new loans and thus allow your investment to grow further over time. When you want to access the money, you simply choose to have them paid out.