{"id":12442,"date":"2018-05-12T05:11:29","date_gmt":"2018-05-12T12:11:29","guid":{"rendered":"http:\/\/www.marketriders.com\/investing\/?p=12442"},"modified":"2018-06-01T14:48:09","modified_gmt":"2018-06-01T21:48:09","slug":"investor-facts-mutual-fund","status":"publish","type":"post","link":"https:\/\/www.marketriders.com\/investing\/investor-facts-mutual-fund\/","title":{"rendered":"Investor Facts: What Is A Mutual Fund?"},"content":{"rendered":"

A mutual fund is a collective form of investment that pools cash to buy and manage a\u00a0portfolio of stocks<\/a>, bonds or other assets.<\/p>\n

Broadly speaking, mutual funds exist to outsource the work of managing securities on behalf of\u00a0unrelated\u00a0individual investors.<\/p>\n

Mutual fund managers\u00a0are responsible for buying and selling the investments in the fund in line with an investment objective and specific risk factors.<\/p>\n

The objective is detailed in the mutual fund prospectus, a document which also details\u00a0the expected cost of running the fund and information on\u00a0how much volatility<\/a> to expect from\u00a0the chosen\u00a0investments.<\/p>\n

A\u00a0major attraction\u00a0of investing through\u00a0a mutual fund is the cost and convenience compared to buying\u00a0and managing stocks or bonds on your own.<\/p>\n

\"\"<\/p>\n

In addition, a focus of many “actively managed” mutual funds is to seek\u00a0performance in excess of a benchmark. That is, they seek to beat the market return through timely buying and selling of investments\u00a0rather than accept a return similar\u00a0to the market.<\/p>\n

Mutual funds pool investor money into a common pot to achieve broad diversification and professional management at a\u00a0relatively low cost. For minimums as low as $100, an investor can purchase shares of mutual funds that own thousands of underlying investments and\u00a0participate in broad diversification otherwise impossible to achieve.<\/p>\n

Accordingly, mutual\u00a0funds are tremendously popular with American investors<\/a>. There are thousands of mutual funds in the market holding trillions of dollars in investments; nearly half of U.S.\u00a0households owns one.<\/p>\n

Types of funds<\/h2>\n

Mutual funds can\u00a0have broad or narrow objectives. They invest in stocks, bonds, cash and other investments that meet the objectives of the fund. Funds may be constrained to investments in specific markets (such as the S&P 500 Index of stocks), sectors (real estate), country securities (bonds) or they may be unconstrained and flexible in their choices of investments.<\/p>\n

While mutual funds are pooled investments, the most common type of fund is technically an \u201copen-end investment company.\u201d<\/p>\n

That means fund shares are\u00a0bought from and sold to the company based on the daily “net asset value” of the underlying securities, known as the fund’s NAV. Essentially, that’s\u00a0the net cash value of the investments in the fund if you were to sell them all in a single day, divided by the number of shares in the fund.<\/p>\n

Mutual funds have many advantages, including daily liquidity, ease of transacting, diversification into many underlying securities with low minimums and professional management.\u00a0Over the last few decades mutual funds have declined in cost and\u00a0lowered their minimums<\/a> to invest, increasing their importance to\u00a0the average investor.<\/p>\n

Mutual fund regulation is another positive for investors. Funds outline their ownership, objectives, history, fees, risks and other material information in their prospectus, which is provided to new investors and filed with the U.S. Securities and Exchange Commission.<\/p>\n

Fund investment holdings are disclosed on a quarterly basis, and all mutual funds have independent directors that monitor the potential for conflicts between investors and the mutual fund company.<\/p>\n

Compared to some of the\u00a0other ways one could invest, owning a mutual fund can present\u00a0disadvantages. For instance, mutual funds do not pay taxes on their investment gains; rather, they pass the tax consequences on to their investors.<\/p>\n

This pass-through of taxable gains on\u00a0underlying securities can occur\u00a0even if\u00a0the fund declines in value. Despite stringent regulation, too, some actively managed mutual fund companies have been linked to\u00a0investment scandals.<\/p>\n

MarketRiders, Inc. is a registered investment adviser.\u00a0 Information presented is for educational purposes only and does not intend to make an offer or solicitation for the sale or purchase of any specific securities, investments, or investment strategies.\u00a0 Investments involve risk and, unless otherwise stated, are not guaranteed. Be sure to first consult with a qualified financial adviser and\/or tax professional before implementing any strategy discussed herein. Past performance is not indicative of future performance.<\/i><\/small><\/p>\n","protected":false},"excerpt":{"rendered":"

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