The basics of mutual fund investing

Mutual funds are a professionally managed option for collective investment strategies. In other words, you invest your money with a group of other investors in bonds, short-term money market securities, or other financial instruments. The fund is typically managed by an individual who is appointed or hired as a “fund manager” and whose responsibility is the investment of those collective funds in a number of different securities such as:

– bonds
– short-term money market instruments
– stocks

Typically, the need gains or losses are distributed amongst the investors in the fund on an annual basis.

Additionally, there have been three basic types of investment funds here in the US since 1940 including:

– closed-end funds – a collective fund which offers a limited amount of shares
– open-end funds – referred to as mutual funds in the US
– unit investment trusts or UIT’s – investment companies that offer a fixed securities portfolio which are unmanaged

The advantages and disadvantages of mutual funds

If you’re just getting started in the investment game, you have probably asked yourself “Are mutual funds a good investment?” We can definitely tell you that when you look at all the other investment securities on the market, mutual funds are extremely low in risk compared to others such as bonds, short-term investments with higher risk, and stocks. Consider the advantages of mutual funds:

– Diversified portfolio offers greater earnings potential
– Excellent liquidity means that you always have access to your funds
– High degree of affordability compared to other investments
– Your investment is professionally managed

Naturally, whenever you are considering any type of investment, you always want to weigh the advantages against the disadvantages. Along with the advantages of investing in mutual funds, there are three key disadvantages that you need to consider before making your move in the market:

– The price of your shares is always clouded with uncertainty
– You have no control over your shares as the funds are handled by a fund manager responsible for investing your money properly
– You have to pay annual fees, sales charges, and other associated fees

So as you can readily see, there is much to consider before investing in a particular fund.

Factors that distinguish mutual funds from other investments

The following is a list of beneficial factors that distinguish mutual funds from other funds out there as well as other investments:

– Shares are purchased from the actual fund and not other investors who use the NASDAQ or the NYSE
– Share purchase prices usually include all associated shareholder fees
– When you sell your shares it means you are selling them back to that particular fund
– Creating new funds to accommodate new investors and be sold specifically to them is commonly practiced
– An SEC registered investment advisor is normally the individual that is appointed as the fund’s manager

Make sure when you are contemplating investing in mutual funds that you take the above into consideration along with the advantages and disadvantages mentioned in the prior section above.