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How To Select Mutual Funds

If you are new to investing, you maythen you should consider a mutual fund
have heard of mutual funds but do notthat consists of low risk equities and
know exactly what they are or how toconservative bond and money market
select the right one. A mutual fund isinstruments. If you want a mix of
a collective investment security, andinvestments, then you should look for a
there are many different types. It maybalanced fund. If you want explosive
consist of a mix of several differentcapital appreciation, then you should
types of investment vehicles, such asconsider a high-risk common stock or
stocks, bonds, or derivatives, or it mayhigh-yielding bond fund.
consist of nothing but stocks that areThey are different than stocks when it
part of a certain sector of the economy,comes to fees and expenses. As with
or it could be just bonds.stocks, funds are subject to capital
For example, there are mutual funds thatgains taxes. But a fund is sometimes
consist of nothing but technologysubject to a front-end and/or back-end
stocks. There are also funds that areload. If there is a front-end load,
comprised of stocks that have a similarthat means that a percentage of the
market capitalization (such as mid-capinitial investment is automatically
funds, large-cap funds, or small-capdeducted to pay for commissions to the
funds). And some might contain severalfund. If there is a back-end load, the
different types of securities (such asinvestor must pay a fee when the
stocks, bonds, etc.) that all fallsecurity is sold.
within the same risk classificationAlso, there is a 12b-1 fee that is often
(high-risk, medium-risk, low-risk).deducted to pay for advertising expenses
Just like stocks, mutual funds have aincurred for the marketing of the fund
price per share, also known as the Netto the public. Sometimes there is no
Asset Value (NAV). The NAV is12b-1 fee, it depends. Investors might
calculated by dividing the total valuebe unaware of the 12b-1 fee because it
of the fund divided by the number ofis sometimes deducted from the share
shares outstanding. As with stocks, theprice, so in a way, it is an invisible
price fluctuates on a daily basis and itfee.
can be sold just like any otherI hope this introduction to mutual funds
security.will help you make some decisions
When deciding what fund to invest in,regarding your investments. There are
you need to consider your investmentliterally thousands of different funds
goals. Are you looking for long-termavailable, and brokerage houses often
capital appreciation, or would youhave their own set of funds that they
prefer to receive immediate income fromcreate for sale to their customers.
your investment? You also need toTalk to your broker and see if he or she
evaluate your risk tolerance. Are youcan help you identify the best
willing to take a chance on ainvestment vehicle for you. Just make
speculative fund to potentially receivesure you review the fee structure of the
a better return, or is capitalmutual fund you are interested in before
preservation a high priority?you invest.
If capital preservation is your goal,



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