Mutual funds are one of the most popular investment vehicles around the world. This is due to ease and convenience of contributing to mutual fund accounts, their broad diversification and reinvested earnings. Allocating a portion of capital to mutual funds is a great idea for beginners and seasoned investors alike.
Mutual Fund Management
Simply stated, a mutual fund is professionally managed portfolio of stocks and or bonds. Mutual fund managers pool all of the capital received from investors and invests it on their behalf. In exchange for the capital mutual fund investors receives shares of the mutual fund.
Mutual funds offer access to the expertise of professional investment managers without the high price tag of hedge funds and other investment managers. Mutual fund managers are usually supported by a team of investment analysts who help research stocks and determine which holdings to buy and sell.
A Few Types of Mutual Funds
There are probably more than a thousand mutual funds available to investors. However, most of these funds can be categorized in a few different themes. When mixed and matched, these themes can provide excellent diversification across stocks, sectors and asset classes.
Mutual fund portfolios can be constructed with value, growth or income as an objective. Funds can also be built using international stocks, domestic equities or a combination of both. Some funds also tailor to smaller niches, like green energy investments or rare earth minerals.
Fees and Expenses of Mutual Funds
Some mutual funds charge a front-end load or back-end load. Mutual fund loads are sales charges that can be compared to a commission. It’s commonly assumed that load mutual funds are not a good investment and that no load funds are superior. As an investor you should consider funds that provide great returns year in and year out regardless of the fee structure.
Mutual funds can also charge it’s investors a management fee. Management fees are reflected in the value of each share of the fund, thus you will never receive a bill for a management fee. Management fees cover the operating expenses of the portfolio management company and individual fund.
Mutual funds provide great opportunities for both beginners and seasoned investors. Like investing in stocks and bonds, its a good idea to do your research before investing in a mutual fund.