What Are Mutual Funds?

What Are Mutual Funds?

Utilizing the stock market, buying and selling stocks, to make money used to be something only an elite group of people could do. It took someone with a lot of money, savvy and knowledge of the market to make use of it. Today, it has become quite easy for anyone to make money from the stock market. One of the ways in which it has become easier is through the creation of mutual funds. About half of the United States contributes to mutual funds each year. In this article we will look at how mutual funds work and some of the basics involved.

How Mutual Funds Work

All a mutual fund is, is an assortment of bonds, stocks and securities.  A company brings a group of people together to invest in these 3 things. Each of these people (investors) are buying shares with their money. The more money they spend, the more shares they own. There are 3 ways to make money from mutual funds. You can make money from the interest on bonds and the dividends on stocks, from the capital gain caused by the increased price of securities, and the increase in fund holdings (if the increase is not sold by your fund manager). Mutual funds usually give you the choice to keep the money you’ve made or to reinvest it.

There are about 5 major advantages to buying mutual funds. The first advantage is the liquidity of mutual funds. That is to say, the ease in which you can convert your shares to actual money. The second advantage is the diversification in mutual funds. Unlike buying individual stocks and losing all your money when it crashes, you are invested in a number of stocks. So, if one goes sour you still have a bunch of others to help balance it out so that the loss is not as hard hitting. Professional management is also a big advantage to mutual funds. Many people don’t have time to buy and sell stocks and keep their eye on the market. They have full time jobs to do. With mutual funds, you have a professional taking care of your investments. Another advantage to mutual funds are their low transaction costs. The low transaction costs have to do with the number of securities that are bought. And last, but not least, simplicity. Buying mutual funds is easy. You can walk into your bank and buy some right now.

Mutual fund report.

Mutual Fund Basics

Mutual funds come in 3 varieties. There are fixed-income funds. These are made up of bonds. There are equity funds. They are made up of stocks and there are money market funds. There are a large number of mutual funds that fall under these 3 categories. Mutual funds outnumber stocks in the United States. Some of the different types of funds, starting from the most risky to the least are: index funds, specialty funds, global/international funds, equity funds, balanced funds, bond/income funds and money market funds.

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