What are mutual funds? A guide for Dutch investors

With a growing interest in wealth management in the Netherlands, where Dutch households have private investments amounting to over EUR 185.4 billion as of the end of 2021, the interest for mutual funds has proportionately increased. If you are a Dutch investor who is looking to build a well-rounded portfolio of securities and you are not sure where to start, mutual funds may be a good idea for a relatively low-risk approach. In this article, we will take you through the basics of what mutual funds are, how they work, and the benefits of investing in a fund. We will also briefly go through how you can get started investing.

What are mutual funds and how do they work?

Mutual funds are a type of investment vehicle that pools money from investors to purchase a diversified portfolio of instruments such as stocks or bonds. A fund is managed by a professional fund manager from a financial institution such as an investment bank, and this manager usually has plenty of experience in the field to make educated and informed investment decisions. The fund manager buys and sells securities in accordance with the fund’s investment objective, and investors buy fund shares. The value of the shares rises or falls depending on market conditions and the price movements of the underlying securities in the fund’s portfolio.

What are the benefits of investing in mutual funds?

The benefits of investing in mutual funds are plenty, and it makes them a popular choice for many different types of investors.

Diversification

The first and most obvious benefit of mutual funds is the opportunity to invest in a diversified portfolio. Mutual funds are comprised of stocks, bonds, and other securities, proportionately bought and sold. This access to a diversified portfolio spreads the risk of investing. This is because when investors purchase shares of a fund, they can gain a wide exposure to a variety of securities automatically.

Professional management

Mutual funds are managed by professionals who work at financial institutions and have years – and sometimes decades – of experience in the financial field. This means they are able to make more informed decisions than the public, and investors can rely on their expertise to do much of the heavy lifting. Of course, investors themselves must be aware of the choices they make when choosing a fund to buy. However, the professionals take charge of conducting research and monitoring market conditions to make sure the fund has good chances of meeting its objectives.

Liquidity

Mutual funds are generally liquid, especially the most popular ones with many investors. Therefore, investors may find it relatively easy to enter and exit a mutual fund investment as they want to on any business day.

Transparency

Mutual fund managers are required to disclose the status of their fund and investment holdings, and they are also required to release information on the performance of the fund and investment strategies. This high level of transparency can offer investors peace of mind and they can make more informed decisions when choosing a fund to invest in.

Affordability

Finally, many people are put off by investing because of the prospect of high costs. Mutual funds are attractive as they are often very affordable, and investors can get started with a relatively small amount of money. This depends on the fund, of course, but investors will find there are plenty of them with low minimum investment requirements.

Ways to invest in mutual funds

There are various ways to invest in mutual funds if you are in the Netherlands. Some of the most popular methods include:

Direct investment through the mutual fund company

Mutual fund companies allow investors to invest in their funds through their company website or through calling their customer service line. This is a great way to get to the source directly, and if you only want to invest in one fund, it is a convenient way to start investing.

Through a brokerage

Many brokerage firms offer access to a wide range of mutual funds, and opening an account with a brokerage is a great way for investors who also want to invest in other assets, such as individual stocks, commodities, and derivatives. Brokers may also offer tools and resources to help you select the right funds, if you have not determined which one to choose. A good example in the Netherlands is Saxo, a Danish investment bank with an international presence.

Through a financial advisor

Finally, some Dutch investors may choose to work with a financial advisor to select mutual funds that align with their goals and investment objectives. This is a good choice for people who do not know very much about the financial field and want to receive personalised advice.

The bottom line

Mutual funds are a very popular investment vehicle among Dutch households for their transparency, affordability, and liquidity. The fact that these funds are managed by professionals and have low barriers to entry also make them a very attractive option for newer investors who want to get started building their wealth. It is worth mentioning that though mutual funds are considered relatively stable investments with low risk exposure, there is still risk involved, and investors should ensure they understand what they are investing in before making the decision.