Understanding Mutual Funds

Answer 1

A mutual fund is an investment fund that is professionally managed and raises capital from a wide variety of investors. A mutual fund is often a preferred investment over individual securities because the investment provides its investors with a diverse investment. When looking at investing in a mutual fund, there are several aspects that an investor should take into consideration.

The first aspect of a mutual fund that an investor should understand before investing is the mutual funds investment strategy. Each fund must follow a certain investment strategy, although the strategies can vary significantly from one fund to the next. Some mutual funds are growth funds which aim for high returns, but accept high risk. Other funds are more secure, but offer lower potential returns. Regardless of the investment strategy, a mutual fund will invest in a wide variety of securities, which helps diversify the investments. Each fund manager will select their own balance of high and low risk securities.

The second aspect of a mutual fund which must be considered is the history of the fund. Each fund manager should be able to provide a potential investor with a report of average returns. The report should show returns received over the past year, three year, and five year periods. Furthermore, the investor should get a strong understanding of the dividend that they can expect to receive each year. An investor should also research online and see if any other investors have large complaints about the fund or the fund manager.

An investor who wants to invest in a mutual fund also needs to get a strong understanding of the expenses associated with the mutual fund. The expenses that you will be charged can have a large impact on the total return that you will receive. Some of the mot common fees that are charged are management fees, service fees, broker fees, and other fees such as legal and accounting fees.