Mutual funds are among the most popular and successful investment vehicles, thanks to their combination of flexibility, low cost, and the chance for high returns. Investing in a mutual fund is different than simply packing money into a savings account or a certificate of deposit (CD) at a bank. When you invest in a mutual fund, you are actually buying shares of stock in a company. The company you are buying is an investment firm. Mutual funds are in the business of investing in securities, much like Ford is in the business of making cars. The assets for a mutual fund are different, but the ultimate goal of each company is to make money for shareholders.
Shareholders make money in one of three ways. The first way is to see a return from the interest and dividend payments off of the fund’s underlying holdings. Investors can also make money based on trades made by management; if a mutual fund earns capital gains from a trade, it is legally obligated to pass on the profits to shareholders. This is known as a capital gains distribution. The last way is through standard asset appreciation, which means the value of the mutual fund shares increases.
Initial Public Offering (IPO): When a company raises funds by issuing new shares or debentures for sale to the public, it is called a public issue, or an IPO (initial public offering). A company which is not already listed on any stock exchange makes its debut on the stock markets through IPO. A good IPO is a best instrument for short gain (listing gains) as well as entry point for long positions. An IPO is the first time any private company puts up its shares on the stock market. One advantage of an IPO over other forms of investment is that it promises huge returns on minimal initial capital. IPOs are performed by private companies that are not yet listed on the stock market. Since these companies operate at a relatively small scale and aren’t much established in the business scene, the share prices offered during an IPO are much less than FPOs (Follow on Public Offering) or shares of companies that are already listed on the stock market. This gives a major advantage in terms of cost for the investors.
An Equity Share [Stock], normally known as ordinary share is a part ownership where each member is a fractional owner and initiates the maximum entrepreneurial liability related with a trading concern. Equity shares are the main source of finance of a firm. It is issued to the general public. Equity shareholders do not enjoy any preferential rights with regard to repayment of capital and dividend. They are entitled to residual income of the company, but they enjoy the right to control the affairs of the business and all the shareholders collectively are the owners of the company. These types of shareholders in any organization possess the right to vote.