Investing In Biotech Mutual Funds

2008-05-14 12:02:16

( Financial )



While there is a potential of earning tremendous profits if you invest in biotech mutual funds or biotech stocks, a number of risks are involved and their complex nature may just turn off a neophyte investor. If you wish to pour your investment money with biotech mutual funds, you should get to know a number of things about the company first.

If it is a newly-formed biotech company, then you should be very cautious and do your own homework, especially on the aspects of drug pipeline, cash flow, the company's research and development, and whether the company has forged any partnership with other firms.

Investing in biotech mutual funds may mean that you have to pay some fees. But if you are able to choose a portfolio that does not have a high trading frequency, and a fund that is holding at most twenty of the most leading biotech stocks, then you could be on the right track. You should also keep in mind that it would be very risky to invest in biotech mutual funds if you do not have the inclination to be interested in the biotech sector.

Biotech mutual funds provide enough degree of diversification of biotech-related investments. As an investor, you should also become aware of other issues. Although they may be called biotech mutual funds, some of these funds are actually invested largely in major pharmaceutical companies. While this practice is not illegal and entirely misleading, it pays to know what you are getting at.

Fund managers who combine biotech and pharmaceutical stocks have a reasonable objective. Through diversification, they hope to reduce the risk of losing because of the market's volatility. However, the possibility of diluting performance in the process is also present. Before buying, make sure to check the prospectus of biotech mutual funds.


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