What You Need To Know About Mutual Funds

By: RJ Camposagrado


A mutual fund is a efficiently managed type of collective investment plan that pools money from many investors and invests typically in investment securities (stocks, bonds, short-term money market instruments, other mutual funds, other securities, and/or commodities such as precious metals).

Mutual funds are divided into shares and can be bought much like stocks, allowing mutual funds to have a high liquidity. Mutual funds are suitable, mainly for small investors, because they diversify an individual’s monies among a number of investments. Investors share in the profits of a mutual fund, and mutual fund shares can be sold back to the company on any business day at the net asset value price. Mutual funds may or may not have a load, or fee; however, funds with a load will offer advice from a specialist, which may aid the investor in choosing a mutual fund.

Types of Mutual Funds

Open End Mutual Fund - A mutual fund with shares bought and sold by the fund itself. An investor invests by sending the mutual fund company a check which then calculates the Net Asset Value at the close of business that day and credits the investor with the suitable number of shares. When the investors sells their shares, the mutual fund company redeems the shares and calculates the amount owed based on the Net Asset Value.

Closed End Mutual Fund - An investment mutual fund that trades like other stocks. The price is determined by the marketplace. If the price is exceeding net asset value the mutual fund is said to trade at a premium. If the price is lower than the net asset value the fund is said to trade at a discount (normally funds trade at a small [5-10%] discount to net asset value).

Index Fund - fund that seeks to mirror the results of an index such as the S&P 500 Index, the Wilshire 5000 Index or the FTSEurofirst. Since the fund merely tries to mirror the makeup of the index the costs of analysts etc. are avoided and index funds benefit from a lower expense ratio.

Net Asset Value (NAV) - Total assets minus total liabilities then divided by the total number of outstanding shares. The NAV is calculated daily by the funds.

Front End Load - an open end mutual fund with a sales fee (usually to pay salespeople, stock brokers, etc.). The "load" is a percentage of total purchase price and often declines with bigger invested amounts.

Back End Load - an open end mutual fund with a sales fee (typically to pay salespeople, stock brokers, etc.). The "load" is charged to the investor when they sell rather than they buy. It is calculated as percentage of total sales price.

12b-1 fees - an open end mutual fund with a sales fee (customarily to pay salespeople, stock brokers, etc.). This fee is a percentage of total value. Often it is charged on mutual funds without front end loads (to provide payment to salespeople and stock brokers without having to make the sales charge as visible to the customer).

Money Market Fund - Money market funds hold 26% of mutual fund assets in the United States. [12] Money market funds entail the least risk, as well as lower rates of return. Unlike certificates of deposit (CDs), money market shares are liquid and redeemable at any time.

Exchange Traded Fund - An exchange-traded fund (or ETF) (also known as Exchange-Traded Product (ETP)) are securities that closely resemble index funds, but can be bought and sold during the day just like common stocks. These investment vehicles allow investors a well-situated way to purchase a broad basket of securities in a single transaction. Essentially, ETFs offer the convenience of a stock along with the diversification of a mutual fund.

Inverse Funds - ETFs that aim to act as short positions would. For example if the index they target declines 1% the inverse fund would increase 1%.

Hedge Fund – Hedge Funds are private investment partnerships (exempt from SEC rules for mutual funds). Typically hedge funds take aggressive, often speculative and leveraged investment strategies but that is not required to be a hedge fund. Often the fund managers are paid performance fees, taking a significant percentage of gains. They are only open for investments from wealthy investors (over $200,000 in income and net worth of over $1 million).

Equity Funds - consist mainly of stock investments, are the most common type of mutual fund. Equity funds hold 50 percent of all amounts invested in mutual funds in the United States. Often equity funds focus investments on particular strategies and certain types of issuers.

Capitalization (Mid-Cap and Large Cap) – SMALL CAP FUND, fund comprised of relatively small publicly traded corporations, with a total market value, or capitalization, of less than $500 million. MID-CAP FUND, a fund that invests principally in the stocks of companies with a medium market capitalization (mid caps). LARGE CAP FUND, the stocks of companies with market capitalizations of $5 billion.

Growth Fund - A growth fund is a type of mutual fund that mostly focuses on the purchase of equities likely to have excellent growth potential. These mutual funds take higher investment risks and invest in more volatile stocks to achieve above average growth. Stock values may appreciate or depreciate depending on the success of the companies invested in and other market factors.

Funds of Funds - A "fund of funds" (FoF) is an investment strategy of holding a portfolio of other investment funds rather than investing directly in shares, bonds or other securities. This type of investing is often referred to as multi-manager investment. There are different types of 'fund of funds', each investing in a different type of collective investment scheme (typically one type per FoF), eg. 'mutual fund' FoF, hedge fund FoF, private equity FoF or investment trust FoF.

We all have receive lots of suggestions all through out life, some suggestions are welcome, some are unwelcome and very few are actually beneficial or even profitable. So if you could want some profitable and useful advice in life, here are the investment advice mutual funds at your disposal. What other advice could be more profitable than an instruction that helps you earn profits or helps you earn money?

There are many different mutual funds available in the financial market. If you are an newbie or a beginner in the world of financial trading and investing, you would be at first confused by even the mention of terms like stocks, mutual funds, stock market, capital, investment, portfolio, return of investment, equities, options, etc. Finding investment advice about mutual funds or assistance in investing in the right mutual fund according to your requirements and needs, is a big step by step journey on the path of mutual fund investing and gaining know how and knowledge about mutual fund investments.

Where can you get the services of the investment advice for mutual funds? They are universal on the Internet. You simply need to log in to the net, and you will have a sea of information with numerous investment advice on mutual funds, out there. Now if you have been assuming that all this advice comes at a steep price, you have been thinking wrong. That is because these investment advice on mutual funds, provide out all the info and education and training, totally free of charge and cost or by a free trial basis.

A mutual fund screener, like the one offered at http://www.Zacks.com, offers free mutual fund screening without any hidden costs or terms and conditions, merely for the reason that their business is dependent on investors like you. Unless you learn and train yourself to invest in the market, how will these companies earn? The complete business or earnings of these investment advice mutual funds are on the commissions they gain, while you trade in the market. They very well know that unless the investor, (that is you) is trained and not kept informed about the knacks of the trade, they will not trade in the uncertain financial market. And unless the investor trades, they cannot earn any money on commissions.

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