Q. What is a Mutual Fund?
Q. Why invest in Mutual Funds?
Q. How do Mutual Funds work?
Q. How can I make money from my Mutual Fund investment?
Q. What are the benefits of investing in Mutual Funds?
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| What is a Mutual Fund? |
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A mutual fund is a collection of stocks, bonds, or money market securities that is owned by many investors and managed by a professional investment company.
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| Why invest in Mutual Funds? |
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In today's complex financial marketplace, mutual funds offer investors a simpler, more convenient, and less time-consuming method of investing in a portfolio of securities (like stocks and bonds) than trading them individually. Mutual funds offer an effective way to achieve financial goals without spending all the time and resources necessary to manage a well-diversified portfolio of individual securities.
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| How do Mutual Funds work? |
The idea is simple. When you invest in a mutual fund, your dollars are pooled with other investors' dollars. The fund's management team uses that money to build and manage a portfolio of securities. Each fund has an investment objective or strategy that dictates, in general, what types of securities are bought for the fund's portfolio. Your investment buys shares of that portfolio at a share price that is updated daily.
Each fund's objective is detailed in its prospectus, which details a fund's major features, portfolio strategy, risks, and expenses. You should always read a fund's prospectus before investing or sending any money.
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| How can I make money from my Mutual Fund investment? |
When you invest in a mutual fund, you can earn money in three ways:
•Capital appreciation
The share price of your mutual fund rises as the securities in its portfolio increase in market value.
•Capital gains
Your mutual fund sells securities within the portfolio for a profit.
•Dividend income
The securities in your mutual fund's portfolio earn interest or pay dividends.
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| What are the benefits of investing in Mutual Funds? |
Professional Money Management
It takes time, experience, and vast resources to capitalize on the financial markets' opportunities. When you invest in a mutual fund, expert portfolio managers study the markets to make informed decisions on your behalf.
Diversification
Mutual funds invest your assets in a large number of securities, making you less dependent upon the success of any one security.
Variety of Investment Choices
A mutual fund investor has more options than ever before--stock, bond, and money market funds--to satisfy many objectives, from the most conservative to the most venturesome. In addition, specialized funds are available--for instance, those that invest only in certain geographic regions or in certain sectors or industries (like healthcare, technology, or energy). There are even funds that have adopted certain social objectives or that follow specific investment philosophies.
Liquidity
Investors can cash in all or part of their shares at any time and receive the current value of their investment, which may be more or less than the original investment. You do not need to find a buyer; the fund is always ready to buy back (redeem) its shares.
Low Minimum Investment
Mutual fund investing is an affordable way to invest in a diversified portfolio. In fact, you can start your mutual fund investment program with some mutual fund companies for as little as $100.
Regulation
All funds must provide a "prospectus" to every investor. This document describes the fund, its shares, and its investment objectives in detail. It also outlines all fees and expenses.
All mutual funds are also required to provide shareholders with periodic reports on what the fund is doing and what is happening to its investments. In addition, the Investment Company Act of 1940 requires all funds to meet certain operating standards.
Easy to Monitor
Investors can find the per-share value (know as "net asset value") published each day in the financial section of most major newspapers.
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