Mutual Funds Essay, Research Paper

MUTUAL FUNDS

A Mutual Fund is a company that combines, or pools, investors’ money and, generally, purchases stocks or bonds. Ideally, a fund’s size and resultant efficiency, combined with experienced management, provide advantages for investors that include diversification, expert stock and bond selection, low costs, and convenience. (Mutual, 2001). With a mutual fund, investors pool their money with one common goal and that is to make more. When you invest in a mutual fund, you own share(s) of the fund, which give you certain voting rights. Although, a mutual fund ’s investment decisions are made by the portfolio manager, or a team of managers (Rowland, 1997). Make Sure you choose the right manager for you

There are 10 commandments of Mutual Fund Investing ONE: You can lose a bundle if you pick the wrong kind of mutual fund. Read carefully the free literature that mutual fund companies provide on their funds. Always understand what you are investing in. TWO: Don’t rush out and buy the first mutual fund that looks good. You first have to identify your investment goals, determine how much you need from your investment and figure out how much you’re willing to risk losing THREE: Don’t try to make quick profits. Always invest for the long term. You should plan to keep some of your mutual funds an absolute minimum of 5 to 10 years. FOUR: Mix up your investments. You can cut your chances of losing money by putting your money in different types of investments. FIVE: Invest regularly with each paycheck, before you have a chance to spend all your money. Mutual funds have automatic investment programs. Money is electronically taken out of your checking account and invested in the fund. SIX: Do your homework. Once you determined how much money you need and by when, as well as how much you can afford to lose, research the best investments to meet your goals. Most library business sections carry information on mutual funds. SEVEN: Avoid paying high commissions and fees for mutual funds. Make your money work for you, not for your stockbroker. EIGHT: Make sure your mutual fund investment earns enough so that your nest egg at least keeps pace with rising prices. NINE: Know when to sell your mutual funds. Which is almost never. TEN: Invest to beat the taxman. Take advantage of an Individual Retirement Accounts (IRAs) and other tax shelters.

Each mutual fund has its own strategy and investment objective for making money. It’s up to you to select the right mutual fund for you based on your own needs. There are Two types of mutual funds. The first, Open end funds, are the most common and this type of investment company can issue an unlimited number of ownership shares. The second, closed-end investment, can’t issue new shares in response to people wanting them. They have a fixed number of shares. These type are more like common stock then like a mutual fund (Keown, 2001) . Then there are load and no-load funds. Basically a load is a commission on your ownership of the funds. Most loads are about 5%. . No-loads don’t’ have this fee. However there are other fees to consider. For the most part you are better off with a load-free fund (Rowland, 1997). There are many advantages in investing in mutual funds. Some include, Instant diversification, professional mangement, convenience, flexibility, marketability, and liquidity. Unfortunately, as in all things, there are disadvantages. Some include, No Guarantee on your return, there is risk involved, some have minimum investments that can be a large sum, sales charges and ongoing fees, and not many local branch offices. For the most part if you have a problem with your fund you have to deal with it on a computer or over the phone. (Mutual, 2001).

I am only going to talk about stock mutual funds, balanced mutual funds, and Bond funds.

Bibliography

Keown, A. J. (2001). PERSONAL FINANCE: Turning money into wealth. New

Jersey: Prentice Hall (Keown, 2001)

Rowland, M (1997). A COMMONSENCE GUIDE TO MUTUAL FUNDS. New

Jersey: Bloomberg Press, Princeton. (Rowland, 1997)

Mutual Funds. http://www.greenjungle.com/pub/education/edartmutualfund.html

(2001, April)