Mutual funds are investment products designed for people interested in investing. A mutual fund is an investment product managed by a company that combines money from many investors and capitalizes that money in bonds, stocks, securities, money-market instruments and even cash. A mutual fund typically involves millions perhaps billions of dollars invested in a vast array of financial instruments. Investment mutual fund portfolios are usually managed by investment advisors or firms engaged in the business of providing investment advice.
Professional management
Mutual funds are managed by an investing manager with specialized expertise in investing management. The full time job of an investment manager is to research the universe of investments on the market, so as to choose those that best meet the financial objectives of the fund. These financial advisors, visit companies, analyses financial statements of other companies, and speak with the companies’ representatives. Fund managers usually have an ample experience in portfolio management and securities evaluation and selection.
Diversification
Investing in mutual funds allows diversification of investment. Diversifying your money in various types of investment options, such as real state, bonds and small business allows you to obtain higher rates of return with a reduced level of risk. Diversifying your money in various securities and industries ensures that your financial portfolio can withstand the risk of a downturn. This implies that when some of your investments are low in value, the probability is that others could be up in value, thus, reducing the volatility of your portfolio. You can diversify your investments portfolio in domestic or international markets.
Low fees
The commissions paid for mutual funds cost less than one percent per year in fees. This is because mutual funds usually buy or sell thousands of shares of a security at a time. The commissions paid account for less than what you would pay to buy or sell some hundred shares on your own in the stock market. Investing in bonds and money market funds costs even less. You would avoid paying commissions on your transactions when you invest in a no-load fun. In addition, mutual funds require minimum money investing for high quality management service.
Flexibility
When investing in mutual funds, you may select the level of risk that meets your particular financial objectives. If your goal is to grow your money over a long period of time, you might opt for funds that invest more heavily in stocks. If you objective is to have money available and don’t want your investments to fluctuate as significantly as stocks, you may opt for bonds. If you think you may need money in the short-term, you may want to select a money market fund. Mutual fund shares are redeemable. This allows fund investors to sell their fund shares back to the fund, at the current Net Asset Value (NAV) per share.
Performance
Mutual funds are required to disclose data pertaining performance, operating costs and other fees to shareholders. The manager of a mutual fund announces the NAV every day in newspapers. The Securities and Exchange Commission (SEC) and accounting firms verify the accuracy of these disclosures. A number of firms, such as the Morningstar, Inc., report fund statistics, enabling the comparisons of factors, such as performance, risk, among others. This allows investors the chance to stay informed of the risks, benefits and costs implied.
There are many different types of mutual funds, including stock funds, bond funds, index funds, and money-market funds. Each fund comprises a distinct investment strategy and goals. Different mutual funds may be subjected to distinctive risks, volatility, transaction fees and expenses. According to the U.S. Securities and Exchange Commission, fund fees reduce returns, and are an important factor to consider when buying mutual fund shares.