| If you are like millions of people, you own a | | | | Now let's get down to investment basics in terms |
| mutual fund investment and don't understand its | | | | of the kinds of funds offered based on where |
| investment basics. What is a mutual fund, how | | | | they invest your money. There are three |
| does it work, what kinds are there, and who | | | | traditional types of funds: equity or stock funds |
| should invest money in a mutual fund? Here are | | | | (same thing), bond funds and money market |
| the investment basics. | | | | funds. Plus there are many combinations and |
| A mutual fund is a pool of investor money that is | | | | variations of each of the above. Equity funds |
| professionally managed for its investors as an | | | | invest in stocks and have the greatest profit |
| investment portfolio. These funds are regulated | | | | potential with the heaviest risk. The objective is |
| by the government to protect investors against | | | | growth and perhaps some dividend income. Bond |
| fraud or other abuses. | | | | funds pay the highest dividend income to |
| You can invest money in a mutual fund in a lump | | | | investors, from the interest earned from the |
| sum, like $10,000, and this buys you shares based | | | | bonds held in the portfolio. Investment risk is |
| on the current net asset value or share price. Or, | | | | usually moderate. |
| as millions of Americans do, you can invest | | | | Generally speaking, equity fund share prices |
| periodically like in a 401k plan, IRA, or other | | | | fluctuate significantly and bond fund share prices |
| account. The investment basics from your | | | | fluctuate moderately most of the time. That said, |
| perspective: You then own a small part of a large | | | | the investor should be aware of the fact that |
| investment portfolio of securities and can make | | | | either mutual fund investment can be expected |
| money in two basic ways. The value or price of | | | | to produce losses from time to time. The safest |
| your shares can go up, and your fund might pay | | | | mutual fund type is a money market fund, and |
| income in the form of dividends which are usually | | | | losses are rarely an issue here. These funds earn |
| automatically reinvested for you to buy more | | | | interest for investors by investing in safe |
| fund shares. | | | | (short-term) money market securities. The |
| The investment basics from the mutual fund | | | | dividends they pay vary with prevailing interest |
| company's point of view: they make money by | | | | rates, and the share price is pegged at $1 and |
| taking assets out of the fund periodically to pay | | | | does not fluctuate. |
| for management and other expenses, and to | | | | Who should invest money in a mutual fund? |
| provide themselves with a profit. This usually | | | | Anyone who is in a position to invest and wants |
| amounts to less than 2% of assets a year and | | | | to get ahead; but doesn't have the time, |
| can be as little as ½% or less. The larger | | | | experience or inclination to manage an investment |
| the pool of assets in the investment portfolio, the | | | | portfolio on their own should. The real investment |
| more money the mutual fund company makes. | | | | basics of mutual fund investing are that these |
| Hence, the fund company tries to keep investors | | | | funds were designed for average investors. In |
| happy with good performance, because investors | | | | their present form they have been popular and |
| can pull money out of a mutual fund as easily as | | | | have served investors well for over 40 years. |
| the can invest money. | | | | |