How to Invest in Mutual Funds

If you are into investments but you don't want to invest in one kind of stock or another, perhaps you would rather invest in a mutual fund. With mutual funds you can diversify, meaning you can buy more than one kind of stock. By diversifying you reduce the risks without losing your returns.

When you work with mutual funds you can manage them better. You normally don't buy mutual funds directly. Instead you hire a professional manager to care for your purchase. These managers know how to care for the fund and have credentials to prove it.

Buy having mutual funds you can keep track of them easier. This is because you only have one portfolio to deal with instead of perhaps hundreds of stocks. And if you need money quickly, you can go with mutual funds because they are very liquid.

Mutual funds also cost less. You don't have to spend a lot of money to purchase them like you may have to with a single stock purchase. Plus, you can invest small amounts at any time with no trading costs.

If you have decided to invest in a mutual fund, there is one problem. There are well over 10,000 funds available so which one to go with. Before you actually invest in a mutual fund get a prospectus from the company. The prospectus will tell you about the fund including the fund's goals and how the goals will be achieved, along with a chart of past performance and fees.

Before you invest in a fund, look at the fees the company charges. You will notice these fees in the prospectus. If you are ambitious, you will be able to find the fee structure online. Always go with a fund that has a low expense ratio and stay away from 12b-fees.

Another thing to keep in mind is not to buy loaded funds. These are funds that have sales charges attached to them. If you purchase these types of finds, you will be paying sales charges on top of other fees.

Don't forget to overlook the mutual fund's risk factor. If the fund looks to unstable over the years, or shows signs of it being too risky, don't get involved. And also check with the SEC to make sure the company is decent and has a good reputation.

When buying mutual funds you will have various types of choose from. There are money market funds, municipal bond funds, corporate bond funds, mortgage-backed securities funds, U.S. Government bond funds, stock funds, and index funds.

Mutual funds are no doubt the best way to invest. Just study the market and understand your options. If you do your research, you will be able to pick a fund that will benefit you in the long run. Investigate the company and know what you are getting into. Don't leap before you look first. You may end up getting less than what you bargained for it you do.

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What Are Mutual Funds?

Mutual funds are very popular. In fact, they are the one of the most popular investments on the market today. What does that mean in numbers? There are over 10,000 different funds with over $4 trillion in investments!!

Why are they so popular? For some, it is because of their great returns. Others like funds because they are easy to buy and sell. Still others like them because they are diversified and less risky.

A mutual fund raises money from investors to invest in stocks, bonds, and other securities. It is a package made up of several individual investments. When those investments gain or lose value, you gain or lose as well. When they pay dividends, you get a share of them. Mutual funds also offer professional management and diversification. They do much of your investing work for you.

Mutual funds have been around since the 1800's, but didn't become what we know today until 1924. Even then, they did not become a household word until the 1990's, at which time the number of people owning them tripled. A recent survey shows that 88% of all investors have at least some of their money in mutual funds.

A mutual fund is a special type of company that pools together money from many investors and invests it on behalf of the group, in accordance with a stated set of objectives. Mutual funds raise the money by selling shares of the fund to the public, much like any other company can sell stock in itself to the public. Funds then take the money they receive from the sale of their shares (along with any money made from previous investments) and use it to purchase various investment vehicles, such as stocks, bonds, and money market instruments.

In return for the money they give to the fund when purchasing shares, shareholders receive an equity position in the fund and, in effect, in each of its underlying securities. For most mutual funds, shareholders are free to sell their shares at any time, although the price of a share in a mutual fund will fluctuate daily, depending upon the performance of the securities held by the fund.

Most investors pick mutual funds based on recent fund performance, the suggestion of a friend, and/or the praise bestowed on them by a financial magazine or fund-rating agency. While using these methods can lead one to selecting a quality fund, they can also lead you in the wrong direction and wondering what happened to that "great pick."

Despite the distinctive characteristics of mutual funds - performance, management philosophy, & investment objectives - your specific selections should be chosen within the context of your overall financial plan. Examining features such as past performance are not where your studies should begin. The point of departure is you; your financial priorities; your resources; your approach to investment diversification; your willingness (or lack thereof) to accept market volatility; and your time horizon for a particular investment.

Total Returns are fun to look at and brag about, but simply looking at a fund's total return for the past year is not necessarily a good measure of a fund's quality. For example, investors often talk about how well a specific fund did last year and how happy they are with that performance -- say a 16% return in an equity income fund. Well, in a given year that may or may not have been a good return for an equity income fund. That fund may have under-performed many or most other equity-income funds for the year. Returns should always be measured in context with how other similar "categorized" (e.g.. equity income funds, growth funds, small cap funds, etc.) funds have performed. So don't get overly excited by a funds total return until you see how it compares to other similar funds over the same period.

As it is often said, past performance can't predict future results. But when comparing performance of funds, it is also wise to look beyond the results of one or two years. Most experts suggest that a larger "window" of 5 to 10 years gives a clearer picture of historical performance. Has your fund or the one you are considering performed well over this longer time horizon? Any fund can have one good or one bad year, but if you are investing for the long term, you want a fund that has a consistent track record. While that record doesn't guarantee future results, it gives you an indicator that may be to your advantage.

Copyright 2006 Michael Saville

Michael Saville has over twenty five years experience in providing finance and investment advice. He has written a free five-part short course on 'no load mutual funds' which is available at http:///buy-mutual-funds.com

Mutual Funds - A Secure Investment

Mutual funds are a collection of stocks and/or bonds invested in different securities, which include fixed market securities and money market instrumentals. It facilitates investors to put their money under an efficient investment management. There are three types of mutual funds namely, income funds, growth funds, and balanced funds.

The basic principle underlying mutual funds is to pool in money with other people to convert it into funds. Mutual funds generally buy shares in stocks wherein an experienced fund manager performs the task of selecting, purchasing and selling off the stocks himself. Certificates are then issued to the shareholders as a testimony of proof of their partnership and participation in the emoluments of funds.

There are particularly three ways in which you can make money from a mutual fund. They are:

1. Benefits can be earned from the commission on stocks, and interests on bonds. All the income received all round the year is paid by the funds in the form of a distribution.
2. The fund will have an outstanding benefit provided the funds sell high priced securities. Most of the profits are given back to the investors in a distribution.
3. The value of the fund’s share automatically increases with an increase in the value of unsold high priced fund holdings. Accordingly, you can always sell shares of your mutual fund for profits.

Many people find investing in mutual funds an attractive option to that of dealing directly with the stock market because it is comparatively safe. In fact, these days, mutual funds have become the first preference of many investors. Mutual funds provide a balanced and better approach compared to conventional stock market alternatives. It has an added advantage of investing in several distinct sectors and firms, so, if one company suffers losses, the others may be rising. Investing in mutual funds, therefore, minimizes the loss-bearing risk of monetary assets.

In a nutshell, here are the salient points of the advantages of mutual funds:

1. Cost-effectiveness of investing in mutual funds: The main advantage of investing in mutual funds is the efficient management of your finances. Investors buy funds because they lack the competence and time to manage their own portfolio. It is a cost effective method, especially for a small investor because it is expensive to get a manager to manage individual investments.

2. Diversification: Compared to individual stocks or bonds, mutual funds diversify the risk of bearing loss. The basic intention being to invest in a diverse number of assets in order to overcome the negatives of loss making stocks or bonds by the profits reaped by others.

3. Economy of Scale: The transaction expenses are relatively low as a mutual fund is bought and sold in large amounts of credits.

4. Liquidity: Mutual funds provide the opportunity of converting shares into cash at any point of time.

5. Simplicity: It is easy to buy a mutual fund. Most companies have their own automatic purchase plans, and the minimum investment rates are very small.

Therefore, investing in mutual funds is certainly a secure investment as the chance of loss is spread out, and the opportunity for gains are numerous. At the same time, it is both cost-effective and an investment that gives great future returns.

The days of depending on government largesse in meeting old age financial requirements are growing dimmer by the day. Hence, investing in mutual funds can be a wise choice, especially for those who plan for an early retirement and hope to enjoy a secure senior citizenship.

Joe Kenny writes for the UK Loans Store offering UK secured loans and offer more information on UK bad credit loans and other loan topics available on site.
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