Advantages of Mutual Funds

A mutual fund is also known as an open-end fundchoose mutual funds over other investments such
and is an investment company that spreads itsas bonds and stocks.
money across a diversified portfolio of securities-Diversity can both increase and decrease your
including stocks, bonds or money marketpotential returns and decrease your overall risk.
instruments.Mutual funds allow an investor to spread out his
Shareholders who invest in a fund each own aor her money across a few as a handful to as
representative portion of those investments, lessmany 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 Fundswould be forced to pay enormous transaction
1. Professional Managementfees if they bought the securities individually and
2. Liquidityfor people who don't have time to research their
3. Explicit investment goalsown investments or who don't trust their own
4. Simple reinvestment programsinvestment expertise.
5. Investment diversification.Mutual funds are not necessarily low cost
Disadvantages of Investing in Mutual Fundsinvestments. Many of them charge one time "load
1. Mutual funds cannot be bought or sold duringfees" to new purchasers.
regular trading hours, but instead are priced justTypes of Mutual Funds:
once per day.1. Closed End Mutual Funds:
2. Many funds charge hefty fees, leading to lowerThese 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 activelyexchanges just like corporate stocks.
managed funds tend to under perform their2. Open End Mutual Funds:
benchmark averages.These funds stand ready to issue and redeem
Mutual fund investors make money either byshares on a continuous basis. Shareholders buy
receiving dividends and interest from theirthe shares at the net asset value and can
investment, or by the rise n value of theredeem them at the current market price.
securities. Dividends interest and profits from the3. Load Funds:
sale of any securities (capital gains) are passed onLoad 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 sellWhen sales charge is imposed at the time of
(redeem) their shares at any time for the closingpurchase, 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 to4.