- Mutual Funds have become increasingly popular in the last 20 years, with the number of investors rising to 80 million people. This adds up to half the households in America owning mutual funds, with most having a basic knowledge on the matter.
A mutual fund is a group of stocks and/or bonds put together, to be invested in as one, and similarly to stocks, investors own shares, which signify a partial ownership on the fund.
Making Money off Mutual Funds
- Seeing as funds are a collection of stocks and bonds, investors tend to receive dividends on the stocks and interest on the bonds. Though it is not as direct as when investing in them, funds distribute these dividends and interests to the investors.
- In the case that the fund sells securities, at a profit, there is capital gain, which in most cases is paid out to investors.
- If the price of the fund increases, and it remains unsold by a fund manager, one can sell the mutual fund with a profit.
Advantages of Mutual Funds
- One of the main advantages of mutual funds, is that it is controlled by a team of professional investors and managers, thus attracting small investors, who don’t have the knowledge or time to build their investing portfolio.
- Mutual funds can be considered less risky than stocks and bonds, since one invests in numerous stocks/bonds at once, and a loss won’t have such a big impact as when investing in just one. This means that the more stocks one owns, the smaller the loss, as it can be minimized by the gains of others. Additionally, with mutual funds, one can invest in various industries, and therefore decreasing the chance of a great loss.
- Unlike individual transactions, mutual funds buy and sell great numbers of securities at once, and...
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...esting style or found a specific fund that interests them, one can buy them in numerous ways. Some mutual funds are offered to be bought directly through the fund companies. More commonly, funds are sold through financial institutions such as banks, financial planners, brokers and insurance agents. The drawback to this route of buying a mutual fund, is that one tends to be charged for the transaction fee and the service.
- To avoid these costs, one can buy funds through institutions or programs which don’t charge for the service. Commonly also known as “Fund supermarkets”, one can buy numerous types of funds from different companies. Among the most known examples of such programs are Fidelty’s FundsNetwork, Vanguard’s FundAcess and Schwab’s OneSource. Interestingly, though one can buy funds from a broker, many large-scale broker companies, offer similar programs.
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