Mutual Funds
Mutual Fund is the simplest method to invest money smartly into the volatile market. Mutual Fund is nothing more than a collection of Bonds, Stocks and other securities. Mutual Funds can be considered as one company, which clubs investors together and invests the money in the market.
The investment decisions and tradings are handled by the financial experts at the mutual fund offices, instead of the investor. In other investments, the investor has to spend his free time with the financial pages of Wall Street Journal or run behind the broker in order to take care of his trading.
More than 80 million Americans invests in Mutual Funds which also mean that trillions of dollars are invested in mutual funds. This investment has become very popular since last 2 decades and most of the investors buy Mutual Funds instead of keeping their money in the savings account, which gives negligible interest.
The first no load Mutual Fund was born in 1924, when the 3 Boston money managers, joint their investment and since then it has become popular investment instrument. According to the latest count, there are more than 10,000 Mutual Funds in US.
How Mutual Fund Works?
Step 1: The investor fills up the Mutual Fund form and sends it along with the check to the Mutual Fund office and then the Mutual Fund account is opened.
Step 2: Once the check is deposited in the account, the investor is issued the Mutual Fund shares based on the deposited fund value.
Step 3: The portfolio advisor of the Mutual Fund Company will check the account and analyze how much funds would be available to purchase other securities.
Step 4: When the portfolio advisor is ready to purchase shares of XYZ Company at the lower rate, he notifies the trading department to trade those shares.
Step 5: Once the trading is agreed upon, the funds are transferred to the institution or the person who sold the shares in exchange of the share certificates.
Step 6: Whenever XYZ Company pays dividend, the money is transferred into the Mutual Fund’s account.
Step 7: The Mutual Fund can sometimes hold the money and pay it annually to its investors.
Different Varieties of Mutual Funds:
Mutual Fund is often accompanied with different levels of rewards and risks. The higher the benefits the higher are the risks involved. Some Mutual Funds have low risk and it is not possible to diversify all the risks involved. There are 3 varieties of Mutual Funds:
- Equity Funds: that is the stocks.
- Fixed Income Funds: that is the bonds.
- Money Market Funds: short term debt instruments.
Mutual Fund Investment Fact:
Mutual Fund investment is often overlooked once invested hoping for high yield; but in reality, Mutual Funds haven’t always delivered. Mutual Funds are not equally credited and they are not that easy. Knowing pros and cons is very important before investing in the Mutual Funds. The investor has to be in touch with the mutual fund office timely, and get updated information about his investment as ultimately, the investor will be held responsible for the loss incurred.