What is a mutual fund?

The term mutual funds means funds which are collected from different investors with the main aiming being to collect them and invest the funds in different types of investments. This types of investments are usually know ad portfolio and they include bonds ,stocks ,money market among others. Mutual fund is usually managed by professional investors who try to find the most effective way for the growth of the funds. When someone invest in mutual funds, they become shareholders of that particular company. This means that they will earn dividends and profits from the company. They also risk losing their money if the shares decrease in value.

There are two type of mutual funds, close-ended and open-ended.

Most people invest in open-ended while close-ended is usually considered as open-ended by people though this is not the case. Open-ended mutual funds means share are issued in the funds at any time one wants them. For close ended a limited number of shares can be issued for a given fund and can oly be given back to the fund when the fund get terminated.it is appropriate to note that this does not mean you are constricted to selling the funds, you can sell them to other investors within the market.

Mutual funds can be classified into three categories, this include

Balanced funds – this is a combination of bond and stocks in the investment pool. They usually offer a low risk though they are associated with a low rate of return.

Equity funds – these are investment of common stock only. They type of mutual funds have a higher risk while they can earn more money than any other type of mutual fund

Fixed income – these are made up of corporate and government securities. They usually provide a fixed return and have a low risk.

Mutual funds are preferred by most people since they tend to lower your risk of losing money in a certain investment. This is so since a professional who is oriented to only making profits is handling the investment on your behalf. One can easily buy them and forget them and over time check to see the amounts they have earned.

When one is deciding on whether to invest in mutual funds, it is appropriate to clearly understand the term load and how it works. Load usually refers to sale charges when one is purchasing a mutual fund. This charge usually goes up to approximately 8.5 percent of the selling price. Most mutual funds are don’t have load fund meaning you don’t need the services of a salesperson. Using the internet, one can make smart choices regarding your best options.

To purchase mutual fund, you can use the internet and note the number of companies offering them. By simply filling an application and sending money, you have applied for the mutual fund. Once your application is processed and accepted, you become a shareholder. You will occasionally receive mails informing you how your funds are performing.