Mutual fund means the pulling together of investors money and investing them in a variety of asset classes such as equities, money market funds and bonds. Many banks are offering it to investors and it is a better way to invest than putting all the excess money in a savings account. It is managed by fund managers whose goal is to produce profits for the investors. The portfolio's terms and objectives should be stated in the proposal. The strength of the fund comes from the number of investors who invested in it.
Many investors mean that fund managers have more money to put in different types of investments. Shareholders are given the chance to own several assets though they have minimum capital, which they may not be able to do if they invest by themselves. They pay their financial managers' fee together, which is cheaper than paying individually. It works to their advantage if they are not adept about the market conditions and do not have time to monitor the market. They can save money as well by selling and buying assets in large quantities in one transaction only. Investors own some units in the mutual fund which they share the gains as well as losses among themselves. Units can be bought and exchange to cash based on their net asset values any time they need them.
Before investing in mutual fund, it is important to know its disadvantages too. There is no guarantee that fund managers will perform well all the time especially if they manage large amount of investments. There are fees to be paid to the financial managers and in issuing investors' statements, as well as taxes. Every time they sell assets capital gains tax will be present, though it can be minimized by choosing funds which are tax sensitive. The higher the returns from funds the higher the risks involved, it is true to all kinds of investments as well.
There are many types of funds which have been derived basically from stocks, money markets, and fixed- income. One of these funds is bond fund which provides regular income as replacements for investors' salaries when they retire. Next is balanced fund, it is a mixture of stocks and fixed- income. Followed by equity fund, it invests in stocks and aims to achieve long-term growth of capitals while providing some amount of income. There is specialty fund which is composed of socially responsible fund, regional fund and sector fund, all of these funds concentrate in a specific area of the economy.
Money market fund on the other hand is a short-term kind of investment which concentrates mostly on treasury bills and cash deposits. Last in the list is index fund which only copies the market returns and rules that fund managers can't compete with the market. Investors should know how to read mutual fund table updates which are found mostly in newspapers and even on the internet. Fund performance should be viewed in a long-term basis for example three to ten years because profits may fluctuate every year. The investors' appetite for risks and their investment goals are two of the most important factors to consider before investing in mutual fund.
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