Investing 101 Series – Part 6: Mutual Funds Explained
Mutual Funds are another form of investment that is important to have in your tool box and be aware of how and when to use it. Mutual funds are investments that pool your money together with other investors to purchase shares of a collection of stocks, bonds, or other securities. These are referred to as a portfolio, that might be difficult to recreate on your own.
There are many diverse forms of strategies usually broken down by type of underlying investments. Some are categorized by types of stocks, industries, conservative or growth. They also vary in the form of fee associated with the purchase. It is a way for an individual to benefit from the professional manager of the mutual fund and their ability to manage and grow the portfolio profits.
For the average small investor, mutual funds can be a very smart and cost-effective way to invest. Buying shares in a mutual fund is an easy way to help diversify your investments.
You get the benefit of having a professional manager reviewing the portfolio on an ongoing basis. They have the expertise and technology resources to research companies and analyze market information before making investment decisions.
All mutual funds allow you to buy or sell your fund shares once a day at the close of the market at the fund’s NAV. NAV is the net asset value of the fund in other words the value of the portfolio based on the closing prices of the investments in the fund that day. You can automatically reinvest income from dividends and capital gain distributions or make additional investments at any time.
There are a variety of fees that may be associated with mutual funds. Some funds come with transaction charges or commissions known as loads. There are some funds that charge a redemption fee. Each group of funds may have their own way of charging and these fees need to be evaluated as well as the current and past performance of each mutual fund.
Funds serve as a very good way to get professional management with constant review and to diversify and invest in the industry or segment of the markets you feel is in favor and going to perform the best at the current time.
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