Mutual Fund Basics
May 28, 2009
What is a Mutual Fund?
A mutual fund is an investment that pools money from many investors, and that money is used to invest in stocks, bonds and other securities. One mutual fund share includes a portion of a share of each stock held in the fund’s portfolio.
Who Decides What a Mutual Fund Invests In?
Mutual fund managers decide what securities to buy or sell guided by the mutual fund’s objectives. If a mutual fund’s objective is to invest in the energy sector, the manager cannot buy shares in technology stocks. Fund objectives let you know what to expect now and in the future.
Why Invest in Mutual Funds Instead of Stock?
You can invest in both mutual funds and individual stocks, but mutual funds are particularly useful in some cases.
- Diversification: If you do not have a lot of money to invest, creating your own diversified portfolio to spread risk will be difficult. Diversification is automatic in mutual funds.
- Time: Successful investors take hours every week to analyze their holdings, stock market conditions and to educate themselves further on investing. Mutual funds are a wise choice for those who lack the time to follow stocks so closely.
- Experience: Consistently investing well takes a few years of experience and learning from mistakes and successes. If you are not experienced with trading stocks but want returns over and above what a savings account offers, investing in mutual funds is a good way to grow your personal assets.
Who Decides What a Mutual Fund Invests In?
Mutual fund managers decide what securities to buy or sell guided by the mutual fund’s objectives. If a mutual fund’s objective is to invest in the energy sector, the manager cannot buy shares in technology stocks. Fund objectives let you know what to expect now and in the future.
May 28, 2009 at 3:22 PM
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