Mutual Funds

Mutual Funds
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Mutual funds are very popular and most people understand investing to mean investing in mutual funds. It is therefore important to know what this investment is because it is part of their lives. Mutual funds are investment schemes which are managed by professional investment companies which raise money from the shareholders and pool it together to invest in bonds, stocks and other money market securities for the investors.  

The Fund Manager who manages the fund must be registered. He manages the investments and gives the shareholders an equity share of the investments in the fund. The investment company sets the minimum amount to be paid for buying the investment. Investors cannot invest below this amount. The investors can sell their share of the fund in whole or in part. The company manages the fund professionally on behalf of the investors who pay a fee for this service.

The investments are diversified and the portfolio will include high-return investments with higher risks and low-return investments with low risk to compensate the high risk ones. They buy long-term and short-term investments with varying return on investment ROI in form of capital gains, dividends from stocks and interest earned on bonds for the investors. The profits are distributed to the investors who have an option of reinvesting them in the fund.

There are various types of mutual funds with different objectives which are set-out in the prospectus. They include and are not limited to equity fund, balanced fund, growth fund, income fund, money market fund, stock fund, bond fund, tax-free bond fund and aggressive growth fund and others.

The mutual funds are diversified by portfolio managers to increase the return on investment while spreading the risk. The fund is managed by professional investment managers who understand the financial markets and are experts in investing. They know when to buy and when to sell. They can predict the future of the market since they understand the market trends and how they affect the investments. They may buy when others are selling and sell when others are buying. They invest wisely.

They analyze the Earnings per Share of different stocks, the profitability of different companies, growth potential, dividends per share and other key indicators for a long period both present and past using charts and graphs. They can follow the trend and predict which stocks to invest in. Shares in an initial public offer are analyzed carefully going through the prospectus and making an informed decision whether to buy or not.

The mutual fund is a large investor and benefit from the economies of scale. They can buy in large quantities and are able to buy stocks and bonds which are only available for the large investors. They may buy shares with a low dividend per share but since they buy in large numbers the dividend will be substantial. Bonds may have a low return on investment but have lower risks. Mutual funds may invest in real estate depending on their objectives.

Last modified onTuesday, 02 April 2013 23:39
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