Mutual funds have helped Americans meet their financial goals since the 1920’s. She is one of the most famous investments today. More than 80 million investors own mutual funds in the United States according to the Mutual Fund Education Alliance.Do you want to learn more? discover this info here
But if you’re like most investors, you may have concerns about various types of funds, class shares, expenditures and how to pick the most appropriate funds for your investment needs. In this five-part series of articles about the world of mutual funds, you will find answers to those questions.
What makes a mutual fund?
Mutual funds are also called open-ended funds. That means the number of shares that investors can buy and sell is not reduced. You may also learn of closed-end funds, which are investment firms selling a set number of shares sold on the stock market only.
The capital that you invest in a mutual fund is pooled together with that of other shareholders with similar financial objectives. Many mutual funds are part of a bigger investment organisation or fund unit. Every fund is managed by a team of experienced money managers who track the performance of the fund and, based on comprehensive analysis, select investments they believe will help the fund achieve the investment goals set out in the prospectus (e.g. current income or capital increase).
Since a mutual fund is simply a portfolio of various assets, investors use it to minimise investment risk without having to buy specific stocks and/or bonds. Although suggested, diversification does not guarantee a profit or insure against a loss to the market.
Another advantage of mutual-fund investment is liquidity. In general, every day the stock market is open you can buy or sell your shares. Nevertheless, you should bear in mind that investment prices will fluctuate and there is no guarantee that any fund can achieve its objective. At the current net asset value, mutual fund shares are redeemable and may be more or less than their original cost. Annual operating costs of the project and management fees for the scheme apply. It explains these in the prospectus.
Share mutual funds
If you’re considering investing in a mutual fund, you’ll need to know what kinds of funds are there. A stock or equity fund, bond fund, balanced fund (a mix of stock and bond funds), lifestyle fund, or money market fund may be chosen. We’ll take a look at mutual funds in Part Two of this series.
In general, mutual equity or investment funds are ideally suited to investors who:
Look for capital development over longer periods of time
Willing accept fluctuations in share prices
Provided five years or more of investment horizon.