Mutual Fund is an investment made by many people for the purpose of investing in stocks, bonds and other assets. The common people may not be knowing about the performance of their investments. Hence, they leave it to the control of professional money managers who allocate the funds in a proper manner to produce income or capital gain.
Mutual fund units, or shares can typically be purchased or redeemed as needed at the fund’s current NAV(Net Asset Value) per share. A fund’s NAV is derived by dividing the total value of the securities in the portfolio by the total amount of shares outstanding. While investing in mutual funds, a mutual fund investor is buying part ownership of the mutual fund company and its assets. The fund manager is hired by a board of directors and is legally obligated to work in the best interest of mutual fund shareholders.
One of the largest is the Fixed income category. A fixed income mutual fund focuses on investments that pay a fixed rate of return, such as Government Bonds, Corporate Bonds or Debt Instruments. The idea is the fund portfolio generates a lot of interest income, which can then be passed on to shareholders.
Another group falls under the moniker Index Funds. The investment strategy is based on the belief that it is very hard, and often expensive, to try to consistently beat the market. These funds are often designed with cost-sensitive investors in mind.
In mutual funds, fees are classified into two categories, Annual Operating Fees and Shareholder fees. The annual fund operating fees are charged as an annual percentage of funds under management, usually ranging from 1-3%. The shareholder fees, which come in the form of commissions and redemption fees, are paid directly by shareholders when purchasing or selling the funds.
The advantages of investing in mutual funds are diversification, economies of scale, easy access, professional management and individual-oriented investment. So, without any hesitation, we can start investing in good mutual funds.