MUTUAL FUNDS are investment vehicles
managed by investment companies that essentially pool together investors' money in order
to purchase securities. The main advantage of investing in mutual funds as opposed
to individual securities is diversification. An investor is able to put money into a
fund that potentially owns hundreds of different securities. This reduces the
volatility and market risk to which owners of individual securities are exposed.
Essentially, the mutual fund allows you to take money, even small increments, and
immediately invest it in a variety of securities.
Another advantage of mutual fund
investing is professional management. The investment company hires fund managers to
determine which securities to buy and which to sell. Although, there is never a
guarantee of profit when investing in mutual funds, it can be beneficial to have a
professional manager making the investment decisions for you.
There are two main classifications
of mutual funds: open-end and closed-end. The main difference between the two
is that open-end funds are purchased directly from the managing investment company while
closed-end funds are purchased in the secondary market. Because open-end funds are
issued from the investment company, the fund's value or price per share is always equal to
the net asset value (NAV) of the investment portfolio, although there may be fees and
expenses included. Closed-end fund values will vary from NAV, since it is traded on
the open market, at whatever price the "market" determines is fair.
Another benefit that open-end mutual
funds have is that they generally have greater flexibility in purchases and withdrawals.
Investment companies often let you make monthly contributions or take distributions
of small dollar amounts and can even have it linked to your checking account
electronically. Open-end funds can be a great investment tool for people who want to
contribute to an investment slowly over time yet still be diversified.
Learn about the most common Types of Mutual Funds available.
Contact us today to see if a mutual fund investment would benefit you!
