INVESTMENT -10

A Beginner's Guide To Mutual Fund Investing


If you are new to investing, you may have heard of mutual funds but do not know exactly what they are or how to select the right one. A mutual fund is a collective investment security, and there are many different types. It may consist of a mix of several different types of investment vehicles, such as stocks, bonds, or derivatives, or it may consist of nothing but stocks that are part of a certain sector of the economy, or it could be just bonds.

For example, there are mutual funds that consist of nothing but technology stocks. There are also funds that are comprised of stocks that have a similar market capitalization (such as mid-cap funds, large-cap funds, or small-cap funds). And some might contain several different types of securities (such as stocks, bonds, etc.) that all fall within the same risk classification (high-risk, medium-risk, low-risk).

Just like stocks, mutual funds have a price per share, also known as the Net Asset Value (NAV). The NAV is calculated by dividing the total value of the fund divided by the number of shares outstanding. As with stocks, the price fluctuates on a daily basis and it can be sold just like any other security.

When deciding what fund to invest in, you need to consider your investment goals. Are you looking for long-term capital appreciation, or would you prefer to receive immediate income from your investment? You also need to evaluate your risk tolerance. Are you willing to take a chance on a speculative fund to potentially receive a better return, or is capital preservation a high priority?

If capital preservation is your goal, then you should consider a mutual fund that consists of low risk equities and conservative bond and money market instruments. If you want a mix of investments, then you should look for a balanced fund. If you want explosive capital appreciation, then you should consider a high-risk common stock or high-yielding bond fund.

They are different than stocks when it comes to fees and expenses. As with stocks, funds are subject to capital gains taxes. But a fund is sometimes subject to a front-end and/or back-end load. If there is a front-end load, that means that a percentage of the initial investment is automatically deducted to pay for commissions to the fund. If there is a back-end load, the investor must pay a fee when the security is sold.

Also, there is a 12b-1 fee that is often deducted to pay for advertising expenses incurred for the marketing of the fund to the public. Sometimes there is no 12b-1 fee, it depends. Investors might be unaware of the 12b-1 fee because it is sometimes deducted from the share price, so in a way, it is an invisible fee.

I hope this introduction to mutual funds will help you make some decisions regarding your investments. There are literally thousands of different funds available, and brokerage houses often have their own set of funds that they create for sale to their customers. Talk to your broker and see if he or she can help you identify the best investment vehicle for you. Just make sure you review the fee structure of the mutual fund you are interested in before you invest.



II. Some facts about Mutual Funds

Investing money in different sectors such as in real estate, personal account, in stocks or in mutual funds has become a necessity in modern days. These are ways in which money can be saved for future. Investing money in mutual funds is one such way where there is low risk involved but that depends on different schemes. A mutual fund is packaged by an Investment Company and is a collection of stocks and other investment. This is the simplest way to enter into the stock market even by an average pay check earner. The initial investment one requires to enter mutual funds is a paltry $1000 and with $250 initial investment small number of mutual funds could be purchased.
„« Before investing, potential investors should read and evaluate the individual prospective available with Mutual Funds. The prospective could be available by mail on request from the investor or the investor has the option to check the performance of Mutual Fund on-line.
„« The prospective provides information about the performance of Mutual Funds over past quarters, years and decades as well as the fees that are charged to investors. Certain Mutual funds offered by state and municipal entities are generally no-load funds. Investors do not have to deposit fee for such funds and these are also exempt from some taxes. But incase the investor withdraws or move his investment somewhere else then he has to pay some charge. There are some other charges which the investor has to pay to the company for handling Mutual funds. For investors this much knowledge is essential before he commits a single dime to a mutual fund.
„« Before investing you should check out the stocks and other investments in which the mutual fund you are interested has investments. The knowledge of broader market is essential in determining the future of that Mutual fund.
„« There is also opportunity in investing global stocks, financial, technology or energy stocks but the investor must be ensure that these are doing good in the overall stock market.
„« For investors new to the field there are brokerage houses with professional financial planners to review the investment including realty, equities, bonds and mutual funds on behalf of the investor.
Mutual funds allow the investor to check the risk level. There are many investment plans from which the investor has to choose according to his objective such as retirement plans. Some advisory services provide ratings on Mutual funds that makes easy for an investor to invest. Also articles are published in different journals such as in the Wall Street Journals which informs about current status of different investment agencies. As a rule of thumb investors should seek out mutual funds with least exposure to sub-prime mortgage woes. The investor also check whether any institutional investor has invest in that Mutual fund company as they are the one who goes with the best.