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What is a Mutual Fund?

What is a Mutual Fund? Can it Benefit Me?

Mutual Funds, like the name suggests, are a pool of funds, collected from many different investors to invest in securities- stocks, bonds, equities, money market instruments and similar assets. A money manager operates the mutual funds, investing the funds monies in an effort to increase the value of the investment, also referred to as a capital gain on the investment.

The important of mutual funds, is that this type of investment allows small investors access to professionally managed, diversified portfolios; opportunities that small capital investors would normally be excluded from. Each shareholder participates in the gain or loss of the fund, proportionate to the amount invested through issued Mutual Fund units or shares. These shares can normally be purchased or exchanged as needed at the fund’s current NAVPS (Net Asset Value per share).

If you are a younger or novice American investor, you may find not only are mutual funds good when investing with lower capital, but mutual funds are also a great option for easier investment access with good potential growth. Thought mutual funds are one of the more easily understood investment tools, they can be intimidating to the unseasoned investor. It ok. You may already have shares in a mutual fund through your 401(k) or 403(b) plan. When you buy a mutual fund, you are buying the performance of its portfolio. Because there are hundreds of different securities in an average mutual fund, diversification means the value can be more stable because more profitable securities can offset the security having a bad quarter. The value of the mutual fund will depend on the overall performance of the securities bought by the fund. If you bought just one stock with your capital investment just before it had a bad quarter, your investment could lose a lot of value.

The diversification in a mutual fund is a large part of why this is such a popular investment. Still, it is important to note, that all mutual funds come with risk of investment loss. There is no guarantee of performance and the Federal Deposit Insurance Corporation (FDIC) does guarantee mutual fund investments.

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