What is a Mutual Fund?
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| image via Wikipedia |
A mutual fund is a type of investment in which individuals
can pool their money to buy various types of securities, such as bonds and
stocks. Mutual funds generally are sound investment options for the low-budget
investor since they allow for variegation and professional management. Several
mutual funds invest in fast-growing and aggressive companies, while some invest
in more static "blue chip" stocks.
Just like in most investments, you could lose money as well as profit
from it. Choose your fund based on cost,
risk, and track record.
Mutual funds operate to produce profit, first for the
company managing your funds and second, for you, the investor. The company and
salespeople make revenues through fee systems. There are two types of fees
structures: front-load and no-load. Front-load mutual funds charge a fee once
you purchase your shares, thus your initial investment is reduced by the amount
of the fee. "No-load," on the other hand, means that instead of
charging you up front, the fee is amortized over a number of years.
Theoretically, a no-load fund should earn more since more of your money is
working for you. Pretty much, there is little difference between the two.
A lot of mutual fund companies offer investors the
flexibility of flipping their investments among various funds in their selected
group of funds. Hence, you are able to switch from growth stocks to blue chip
stocks or from bonds to stocks, or even to a money market account, where your
funds are held in cash.
This is a helpful alternative. If interest rates are high,
and stock prices are low, you will consider shifting to an interest-bearing
account. Then, when stock prices oscillate up, you could shift to a secure
stock fund. Most reputable business magazines evaluate the track records of
mutual funds on a regular basis. It is
worth consulting these financial publications for selections.
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