What is a Mutual Fund?

Ever wondered what is a mutual fund? A mutual fund is a pool of money run by a professional or group of professionals called the "investment adviser."

A mutual fund is a company that pools money from many investors and invests the money in stocks, bonds, short-term money-market instruments, other securities or assets, or some combination of these investments. The combined holdings the mutual fund owns are known as its portfolio. Each share represents an investor's proportionate ownership of the fund's holdings and the income those holdings generate.

Because it is sometimes hard for investors to become experts on various businesses for example, what are the best steel, automobile, or telephone companies, investors often depend on professionals who are trained to investigate companies and recommend companies that are likely to succeed.

In a managed mutual fund, after investigating the prospects of many companies, the fund's investment adviser will pick the stocks or bonds of companies and put them into a fund. Investors can buy shares of the fund, and their shares rise or fall in value as the values of the stocks and bonds in the fund rise and fall.

Investors may typically pay a fee when they buy or sell their shares in the fund, and those fees in part pay the salaries and expenses of the professionals who manage the fund.

Even small fees can and do add up and eat into a significant chunk of the returns a mutual fund is likely to produce, so you need to look carefully at how much a fund costs and think about how much it will cost you over the amount of time you plan to own its shares. If two funds are similar in every way except that one charges a higher fee than the other, you'll make more money by choosing the fund with the lower annual costs.

Past performance is not a reliable indicator of future performance. So don't be dazzled by last year's high returns. But past performance can help you assess a fund's volatility over time.

Making any sort of investment involved a certain amount of risk so it is always wise to seek the advice of a professional before making any decisions.

You may freely reprint this article provided the author's biography remains intact:

John Mussi is the founder of Direct Online Loans who help UK homeowners find the best available loans via the http://www.directonlineloans.co.uk website.

In The News:

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Large cap index mutual funds continue to outshine actively-managed large cap schemes  Economic TimesLarge cap index funds are outperforming the actively-managed large cap mutual fund schemes in the past one-year period. Kotak NV 20 ETF is topping the ...
Shall I buy the HDFC AMC stock or mutual fund?  LivemintThe HDFC Asset Management Co. Ltd stock closed 65% up on the first day of listing over its IPO price of ₹ 1,100 per share. Investors who sold on day one, saw ...
Private banks, oil & gas companies find favour among fund managers  Moneycontrol.comMoneycontrol News. The month gone by saw a notable change in sector and stock allocation of funds from the mutual fund industry. On a month-on-month ...
What Type of Mutual Fund Schemes Should You Invest in? Know Here  News18Equity funds are mutual funds which invest majorly in equity stocks of listed companies. They are considered to be risky but they tend to give higher returns in the ...
Mutual funds may need smart bets on smallcap stocks to beat ETF show  Economic TimesSmallcap stocks could see up to ₹1 lakh cr inflow as fund managers look for potential winners: Analysts.
Why do wealth managers recommend multi cap mutual funds?  Economic TimesMany wealth managers believe multi-cap funds are a good starting point for long-term investors, specially those using SIPs for wealth creation.
BJP’s Amit Shah has diversified stock investment portfolio; Rahul Gandhi prefers mutual funds  Economic TimesShah held shares worth Rs 17.56 cr as of March 22, while Gandhi has MFs worth Rs 5.19 cr.
Small- and mid-cap mutual funds open doors again, but should you invest?  LivemintL&T Emerging Businesses Fund and DSP Small Cap Fund have allowed *fresh* mutual fund investments, taking advantage of a continued correction in small- ...
Birla MF looks to parachute out of Jet Airways crashing stock  Business StandardBirla Sun Life Mutual Fund (MF) — the only fund house holding Jet Airways shares in its actively managed schemes — off-loaded Rs 13 crore worth of shares in ...
Mutual funds' exposure to banks hits 3-month low of Rs 1.88 lakh crore in Sept  Economic TimesMutual funds' holding of banking stocks declined by over Rs 21,600 crore to Rs 1.88 lakh crore in September, driven by the correction in equity markets.
How stocks picked by mutual funds over 2014 to 2017 have performed  Economic TimesWhile the most wanted stocks of 2014 and 2015 have done well, the recent picks have disappointed.
Debt mutual funds with Zee exposure send investors into a tizzy  Economic TimesMUMBAI: Worries about the prospects of debt mutual funds holding securities of Subhash Chandra's Essel Group entities have resurfaced after Kotak Mutual ...
How diversified should a mutual fund be?  LivemintDiversification is an important parameter to evaluate a mutual fund portfolio. A diversified portfolio implies lower risk since the poor performance of one or a few ...

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