investments & trading
Is Mutual Funds The Way To Go ? By J. Foley
Mutual funds can invest in many different kinds of securities. Mutual funds are liable to a special set of regulatory, accounting, and tax rules. Mutual funds are divided into two categories: closed-end and open-end. Mutual funds only trade at the end of the day because you trade mutual funds based on their net asset value (NAV). Mutual funds must update their prospectuses at least once a year, so always check to make sure you're looking at the most recent version.
Investors should consider the investment objectives, risks, charges and expenses of a fund carefully before investing. Investors may enter a fund with an initial investment of as little as $500 or regular investments of as little as $50 or $100 per month, withdrawn automatically through investor checking or savings accounts. Investors typically purchase shares in small quantities through brokers at a small premium or discount to the net asset value; this is how the institutional investor makes its profit. Investors like to see not only the rate of return for an individual mutual fund, but also how that fund compares to other similar funds. Investors should be careful about investing in ETFs for income, and evaluate them the same way you would evaluate a dividend-paying stock: Is the yield sustainable (What is the payout ratio).
Performance measurements are probably the single most selection feature of any stock mutual fund. Performance data for periods of less than one year does not reflect the deduction of purchase and redemption fees. The performance of an actively managed fund largely depends on the investment decisions of its manager. Most mutual funds' investment portfolios are continually adjusted under the supervision of a professional manager, who forecasts the future performance of investments appropriate for the fund and chooses those which he or she believes will most closely match the fund's stated investment objective.
Mutual funds offer two key benefits: diversification and professional management. Mutual funds are now popular in employer-sponsored defined contribution retirement plans (401(k)s), IRAs and Roth IRAs. Mutual funds issue redeemable shares that investors purchase directly from the fund (or through a broker for the fund) instead of purchasing from investors on a secondary market. Mutual funds generally sell their shares on a continuous basis, although some funds will stop selling when, for example, they become too large.
Mutual funds are subject to SEC registration and regulation, and are subject to numerous requirements imposed for the protection of investors. Mutual funds are also subject to the Securities Act of 1933 and the Securities Exchange Act of 1934. Mutual funds and other investment companies allow individuals to pool their savings with those of other investors so they may benefit from professional investment management and diversification. Mutual funds are actively managed by a professional money manager who constantly monitors the stocks and bonds in the fund's portfolio.
Article Written By J. Foley
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