Mutual Funds

Mutual Funding.

A mutual fund is at its core a managed portfolio of stocks and/or bonds. You can think of a mutual fund as a company that brings together a large group of people and invests their money on their behalf in this portfolio. Each investor owns shares of the mutual fund, which represent a portion of its holdings. Investing in a share of a mutual fund is different from investing in shares of stock. Unlike stock, mutual fund shares do not give its holders any voting rights. A share of a mutual fund represents investments in many different stocks (or other securities) instead of just one holding. Investors typically earn a return from a mutual fund in three ways: 1. Income is earned from dividends on stocks and interest on bonds held in the fund’s portfolio. A fund pays out nearly all of the income it receives over the year to fund owners in the form of a distribution. Funds often give investors a choice either to receive a check for distributions or to reinvest the earnings and get more shares 2. If the fund sells securities that have increased in price, the fund has a capital gain. Most funds also pass on these gains to investors in a distribution. 3. If fund holdings increase in price but are not sold by the fund manager, the fund's shares increase in price. You can then sell your mutual fund shares for a profit in the market. Mutual funds have some clear advantages for investors, but also some limitations and drawbacks.

Mutual funds provide you with access to investment markets by pooling your money with the money of several other individuals with similar investment goals. By diversifying your investments, mutual funds assist with minimising the potential risks typically associated with investing. Mutual funds differ to stocks as they are not traded on an exchange and investors can buy and sell through a Fund manager at any time. Units are created and sold to new investors on a continuous basis, so you can either invest a lump sum or save on a regular basis.