MUTUAL FUNDS
What is a mutual fund? It is organization (investment company), registered by state or government, that pooling money of individuals and investing in different types of financial securities. Buying shares in a mutual fund you are actually buying shares of an investment company. Such company assets are stocks, bonds, certificates of deposits, etc. Today under management of mutual funds accounts of billions dollars.
Here are some special points about mutual funds:
-
Wide spread of investment tools (so-called diversification). It means that a mutual fund working with stocks, bonds and other market resources of different companies of different kinds and values. Theoretically – it reduce risks of individual investors, but in the real life – not for sure. Why? The problem is that most mutual funds are investing in almost the same “heavy” companies and stocks, and when the great crash-down comes (as for now!) –”big guys” are going down and mutual funds (which there invested in them) are sinking with them!
-
Professional Management. That’s right – in according to the government requirements a mutual fund should be managed by persons with education in financial field and certain market experience. Any individual investor can always get detailed reports about his mutual fund and will always know how his investment is doing. That’s why this kind of investment might be convenient for those who want to “invest and forget”.
-
Requires low money investment. If you short of money – it may be the right thing to you. Some mutual funds allow you to start investing with amount of $150 – 300$.
Before you decided to start with a mutual fund - there are some important things that you need to consider:
-
For how long you wish to own the mutual fund – it allows you to plan your funds and estimated return.
-
Evaluate the risk – it is closely related with the return. The more risk you take - your return should be bigger Do not invest in mutual funds with high risk, if return is not equally higher!
While evaluating a mutual fund, usually recommended to check its performance over the past 10 years to be aware of how the mutual fund performed in the different market environments.
-
Category of mutual fund which best suits your financial requirements. There are two types of mutual funds: Load funds - usually involves a sales charge, and No-Load funds – no sales charge. Actually, there is no big difference between the types, so you should mostly evaluate their performances, but not a status.
In general - mutual funds declare they have return of around 10%/year, but - as we can see it now – there are a lot of mutual fund totally ruined by the recession of today. So, you have to be very careful when you starting with one of them
