Top 10 Questions about Mutual Funds

Are you one of the lucky ones who have spare money and you just don’t know what to do with it? Well, investing in mutual funds could be something for you. Rather than putting your hard-earned cash into a savings account, why don’t you let the money work for you?

By placing your savings into mutual funds you will diversify your risk, invest in a professionally managed fund and still be actively involved in your investment decisions. Even if you don’t have any previous experience dealing in stocks, bonds or other derivatives this could be an option for you.

Before you make an investment, it is important that you do have a general idea what you are investing in. As you don’t need an in-depth knowledge of the product, the below questions and answers should provide you with the information that you require. If you want to know more, browse other articles or go and talk to you bank about mutual funds.

1. What is a mutual fund?
A mutual fund is actually just a pool of money from several different investors. This pool of money is then invested into various stocks and bonds and managed by a funds company. As an individual you buy into this fund when placing money into the pool. You will then get a proportional share of the stocks and bonds that the fund is invested in.

2. Why should I invest in mutual funds?
As there are many investors in a mutual fund the pool allows the managers of the fund to invest in several different securities. This way the risk is being spread. Otherwise, if you had to invest your amount on your own, you might only be able to invest in one stock and the risk would have been a lot higher.

3. How do I go about investing in mutual funds?
There are a few ways to go about buying mutual funds. You can go directly to a fund company or you can go to a bank and invest in one or a few of their selection of mutual funds. There are financial brokers on the market that would help you out too. Go out there and investigate the variety of funds available and the fees involved.

4. When is it s good time to invest in mutual funds?
It depends on whether you are considering placing a large investment or start a weekly or monthly saving. If you decide on the latter then you can start any day. As you then invest in smaller amount over time, you are spreading the risks. If you on the other hand are placing a larger investment at one single time, then you are better off doing so when the stock market is at a low.

5. Who can invest in a mutual fund?
Anyone can invest in these funds as long as they have the money to do so. Often it is recommended not to invest money that you might need in the short-term as this is a long-term investment. If you believe you can do without this money for a period of at least 5 years. Start your mutual funds saving today.

6. What are the benefits from choosing a mutual fund over buying stocks and bonds?
The fact that you are spreading your risk in the mutual fund as these funds contain investments in more than one stock or bond is the biggest advantage

7. Are there any charges involved?
Yes there is. However, you won’t notice the fee as it is taken from the performance of the fund. That is, if the return of a mutual fund is 12 % and the management fee is 2%, you will see the return stated as 10%.

8. How much do I need to invest?
That depends entirely upon you. One of the perks of investing in mutual funds is that you can invest as much or little as you please. You can invest a lump-sum or save on a monthly basis

9. How do I choose the best mutual find?
There are a variety of mutual funds on the market, ranging from low-risk to high risk options and all in-between. Decide how much risk you are willing to take, how long you are planning to keep the funds and that will narrow down your option. There are index funds which replicate the stock market, funds investing in certain areas or countries. It’s a matter of what you believe will give you a high return.

10. How do I sell off my mutual funds?
It’s easy to realize your investment. Often you just contact your provider and they sell it that day and the money is in your account the very next day. Note that tax will have to be paid on any gains.