There are many parallels between mutual fund investments and investment clubs, and it is very important that we, as investors, understand these. The first link is that all funds / investment schemes are contributory. That is, the money being spent does not belong to an individual, rather it belongs to different individuals. In the case of mutual funds, these are funds that are collected from members’ investments in investment clubs or donated by various individuals, and handed over to a fund manager for investment. Therefore any investor to the club is a member of the profits or losses that come from the funds invested. There is no division of funds here by which you can assume that Mr A is not liable for the profits or losses of the investments because there were no investments there.Learn more by visiting funds vs investing
As long as he is a club member he is a beneficiary of the investment proceeds. As a wise man, Mr B can not wake up tomorrow and say he wants his invested money to be refunded because he is not happy with the small fraction given to him or because he doesn’t know why they should be investing in company A or B. — club member is a shareholder in the gains and losses arising from the investments, except that one person voluntarily wishes to withdraw his or her membership. However, there are certain exceptions where, as in the case of investment clubs, the policy of the club is breached, or in the case of a mutual fund, the trust deed or the contract agreement is breached, there is often a dispute here among people crying for justice because a law has been breached.
Another link between the two is that they both are for investment purposes in the long term. Mutual funds typically take one year to mature the assets, at the end of which the profits will be announced and each individual investor will decide what to do with his own share, whether to reinvest it, withdraw only the profits or withdraw from the assets altogether. They have a longer life cycle in investment clubs, until their investment will mature. Typically it’s about 3 and 5 years. This is because they are few in number leaving them with less financial strength, which now means allowing their profits to remain longer and their profit margin to rise. These two investment windows are not getting rich fast programme, but rather solid investment programmes which need time to mature.
The third similarity between the two is that, in terms of investment, the funds are not under the complete control of one individual. It requires a lot of brainstorming from the firm’s analysts. One man can’t just wake up and decide that this is where I want to spend this money, it needs to be in agreement with the executive members, and then there’s a lot of brain storming involved, the nitty gritty of any business they want to spend will be scrapped and eventually they’ll settle for the best they’ve decided on. It’s a common saying that two heads are better than one, and this is one of the reasons why they worked well. The second will consider what one person may have missed and both will be objectively assessed.