| A mutual fund is also known as an open-end fund | | | | choose mutual funds over other investments such |
| and is an investment company that spreads its | | | | as bonds and stocks. |
| money across a diversified portfolio of securities- | | | | Diversity can both increase and decrease your |
| including stocks, bonds or money market | | | | potential returns and decrease your overall risk. |
| instruments. | | | | Mutual funds allow an investor to spread out his |
| Shareholders who invest in a fund each own a | | | | or her money across a few as a handful to as |
| representative portion of those investments, less | | | | many as several thousand companies at one time. |
| any expenses charged by the fund. | | | | Funds can be beneficial for small investors who |
| Advantages of Investing in Mutual Funds | | | | would be forced to pay enormous transaction |
| 1. Professional Management | | | | fees if they bought the securities individually and |
| 2. Liquidity | | | | for people who don't have time to research their |
| 3. Explicit investment goals | | | | own investments or who don't trust their own |
| 4. Simple reinvestment programs | | | | investment expertise. |
| 5. Investment diversification. | | | | Mutual funds are not necessarily low cost |
| Disadvantages of Investing in Mutual Funds | | | | investments. Many of them charge one time "load |
| 1. Mutual funds cannot be bought or sold during | | | | fees" to new purchasers. |
| regular trading hours, but instead are priced just | | | | Types of Mutual Funds: |
| once per day. | | | | 1. Closed End Mutual Funds: |
| 2. Many funds charge hefty fees, leading to lower | | | | These funds issue a fixed number of shares to |
| overall returns. | | | | the investing public and usually trade on the major |
| 3. Overtime, statistics reveal that most actively | | | | exchanges just like corporate stocks. |
| managed funds tend to under perform their | | | | 2. Open End Mutual Funds: |
| benchmark averages. | | | | These funds stand ready to issue and redeem |
| Mutual fund investors make money either by | | | | shares on a continuous basis. Shareholders buy |
| receiving dividends and interest from their | | | | the shares at the net asset value and can |
| investment, or by the rise n value of the | | | | redeem them at the current market price. |
| securities. Dividends interest and profits from the | | | | 3. Load Funds: |
| sale of any securities (capital gains) are passed on | | | | Load funds refer to sales charge paid by an |
| to the shareholders in the form of distributions. | | | | investor who purchases shares in a mutual fund. |
| And shareholders generally are allowed to sell | | | | When sales charge is imposed at the time of |
| (redeem) their shares at any time for the closing | | | | purchase, it is known as a front-end load. Back |
| market price of the fund on that day. | | | | end loads represent charges that are assessed |
| Reasons to Invest in Mutual Funds: | | | | when the investor sells the fund. |
| There are various reasons for the investors to | | | | 4. |