Professional Management
The fund managers do the research for you. They select the securities and monitor the performance.
Mutual Funds
Mutual Funds
A mutual fund is a type of financial vehicle made up of a pool of money collected from many investors to invest in securities like stocks, bonds, money market instruments, and other assets. Mutual funds are operated by professional money managers, who allocate the fund's assets and attempt to produce capital gains or income for the fund's investors. A mutual fund's portfolio is structured and maintained to match the investment objectives stated in its prospectus.r
Understanding Mutual Funds
Mutual funds pool money from the investing public and use that money to buy other securities, usually stocks and bonds. The value of the mutual fund company depends on the performance of the securities it decides to buy. So, when you buy a unit or share of a mutual fund, you are buying the performance of its portfolio or, more precisely, a part of the portfolio's value. Investing in a share of a mutual fund is different from investing in shares of stock. Unlike stock, mutual fund shares do not give its holders any voting rights. A share of a mutual fund represents investments in many different stocks (or other securities) instead of just one holding.
Why do people buy mutual funds?
Mutual funds are a popular choice among investors because they generally offer the following features:
-
-
Affordability
Most mutual funds set a relatively low dollar amount for initial investment and subsequent purchases.
-
Liquidity
Mutual fund investors can easily redeem their shares at any time, for the current net asset value (NAV) plus any redemption fees.
What are the benefits and risks of mutual funds?
Mutual funds offer professional investment management and potential diversification. They also offer three ways to earn money:
-
Capital Gains Distributions
The price of the securities in a fund may increase. When a fund sells a security that has increased in price, the fund has a capital gain. At the end of the year, the fund distributes these capital gains, minus any capital losses, to investors.
-
Increased NAV
If the market value of a fund’s portfolio increases, after deducting expenses, then the value of the fund and its shares increases. The higher NAV reflects the higher value of your investment.
-
Liquidity
Mutual fund investors can easily redeem their shares at any time, for the current net asset value (NAV) plus any redemption fees.