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Mutual funds

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What is a mutual fund

A mutual fund is defined as a company that invests in an expanding portfolio of securities, such as stocks or bonds. The individuals who purchase shares of a mutual fund are its owners or shareholders.

Additionally, a mutual fund can generate profits from its securities in two ways. First, security can reimburse dividends or interest to the fund, and second, security can rise in value.

It is vital to bear in mind that in the same way that it might generate profit, it may also drop and lead to losing money.

Advantages of investing in a mutual fund

Professional management

Knowledge and experience is essential in order to choose investments correctly and continually monitor those investments.

Liquidity

With mutual fund shares, investors can access their money during the investment. It is necessary by law to buy or redeem shares each business day, and the price of these shares is called fund’s Net Asset Value (NAV). The NAV is calculated by adding all the fund’s assets, minus the liabilities and then by dividing that result by the total number of outstanding shares.

Convenience

Investors have the opportunity to buy or sell mutual fund shares directly by a broker, financial planner, banks, telephone, email as well as manually through a computer. Additionally, mutual funds provide services such as monthly or quarterly account statements, tax information, and 24 hour telephone and computer access to mutual fund and account figures.

Diversification

Successful investors acknowledge that variety in their investments is significant. Diversifying their investments minimizes the risk of failing. The market offers this opportunity to investors. Thus it is best to diversify instead of investing only into one specific investment.

Low costs

Mutual Funds consist of a large number of securities and bonds and the main way an investor pays for this service by a fee that is based on the total worth of the investors account. The level of fees differs due to the large number of competing companies and long amount of funds available in the industry.

Variety

Nowadays, the market provides a number of different investment opportunities for investors to choose from, such as: stocks, bonds, money market funds among a selection of investment approaches.