Fundamentals of the Mutual Funds
Simply put, a mutual fund is a fund that is shared by an investment company where the stockholders will collectively invest their money in a myriad of stocks, money-market investments and bonds.
Advantages
A mutual fund is a relatively profitable and safe investment. It offers the benefits of professional management of the money invested and the myriad of investments. The mutual fund manager assures the thorough study and research of the financial market to determine the appropriate investment vehicles to which the fund will be invested. His primary job is to provide the investors the highest possible return of the mutual fund investments. He maintains constant observation on the financial market and analyzes the current trends that in any way may affect the funds.
Disadvantages
Though mutual funds are considerably safe, they are more susceptible to losses as compared with bank accounts and loan and savings associations. Money deposited in bank and loans and savings association is usually insured by the federal government. This is not true with bonds and stocks since these, in nature are constantly rising and falling.
However, if mutual funds are compared with individual funds, you are guaranteed of safer returns since you are aided by mutual fund managers. And if in case one component of what he invested failed, it would be far too possible for all your stocks, bonds and investments will decline.
Types of mutual funds
There are two basic categories of mutual funds:
Open-end funds- investors in this form may at any time request the buying back of their investments.
Close-end funds- normally have fixed quantities of shares that may be purchased or redeemed in accordance with the market prices including the commission.
There are three types of investment objectives that are normally used in classifying mutual funds. Each of which may be further subdivided.
? Growth of capital
? Stability of capital
? Current income
Subdivisions:
? Balanced funds
? Sector funds
? Political agenda
? Precious metals funds
? Municipal bond funds
? International stock funds
Shareholders receive dividend/s or periodic investment incomes. These are the resultant of the income and dividends earned by the variety of securities that compose the fund’s portfolio. Shareholders normally elect these shares to be reinvested to other securities for continuous revenue. In the process if investing, the shareholder may either make monthly payments or choose to automatically withdraw certain amounts from his bank account or savings and loans account.