In general, a mutual fund can be defined as “a financial
intermediary that allows a group of investors to pool their money
together with a predetermined investment objective.” The mutual fund
will have a fund manager who is responsible for investing the pooled
money into specific securities, most often stocks or bonds. When
you invest in a mutual fund, you are buying a portion of the mutual
fund and, as such, become a shareholder of the fund.
When it comes to mutual funds, diversification is the name of the game
and many investors choose this type of fund specifically because the
funds can be spread out over a wide variety of different kinds of
investments; i.
e. stocks, bonds, growth companies, low grade corporate
bonds, international small companies.
As a holder of mutual funds, there are some terms with which you may
want to become familiar. The words Annual Return, which you’ll
hear often, refers to the investment’s percentage change measured in a
year’s time, including capital gains, reinvestment of distributions,
and dividends.
The Net Asset Value of your mutual fund, calculated at the end of each
day of trading, is the current dollar value of one share of the
fund. Most investors, and those who invest for them, will also be
concerned with the fund’s expense ratio. This reflects the total
annual operating expenses of the mutual fund, displayed as a percentage
of the fund’s average net assets. Both figures will demonstrate
whether or not your money is working for you.
Even if you understand the terms most often associated with this kind
of investment, chances are that you’ll still have a hard time choosing
a few for your portfolio. Statistics show that there are about
10,000 different mutual funds on the market, including money market
funds, bond funds, and stock funds.
Do a little internet research for more information on this worthwhile
type of investment or consult a financial planner or investment
counselor who can help you choose the right investment vehicle for you
and your family.
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