Understand the Working of Mutual Funds

Half of all the households in America invest in mutual funds. For most people mutual fund investment is better than keeping money in the bank. Mutual funds are companies that invest money in stocks, bonds and other securities. When you buy mutual funds your money is a portion of the holdings of the fund. Make money in Mutual funds in a sure and safer way rather than following the swings on Wall Street.Not all mutual funds have delivered and putting your money in a mutual fund does not necessarily give you good returns. How can you make money from mutual funds?o Income from mutual funds is earned from dividends on stocks and interest on bonds.o If securities have increased in price and the fund decides to sell the securities, then the fund has made a capital gain which it passes on to its investors.o The mutual fund holds shares and if these shares have increased in price. You can sell your mutual fund shares for a profit.o You could reinvest your earning and get more shares as well.o Mutual funds is a long term investment optionIs Mutual Fund investment a good option?Get to know mutual fund basics and invest in the best mutual funds and your investment is a wise one. Why are mutual funds safer than stock market? Since the money of the fund is diversified the risk of the company is less. Even though gains in some investments are minimized due to losses in others they still stand to gain in transaction costs as it is for large amounts of securities. The good about mutual funds is that you do not have to follow the prices of stock and get worried about loss. Liquidity is also there since you can convert your shares into cash at any time. Many banks have their own mutual funds and a small investment of $100 on a monthly basis can reap good rewards. On going yearly fees and transaction fees are the costs that eat into your mutual funds profits. Fees for the sales persons and brokers also eat into your funds. These are called loads. There types of loads are front end loads and back end loads. So it is best to choose a fund with no loads.Types of mutual fundsEach fund describes its investment objective. Since it is predetermined you can choose whether to invest in it or not. Each All mutual funds are variations of three basic classes.o Equity Funds invest in stockso Fixed-income funds invest in bondso Money Market funds are diversifiedEquity funds require a long term capital growth with some income. The best returns can be understood by the companies invested in. Large cap companies are the safest equity investments.Bond/Income funds give you higher returns but are risky if they are not invested in government securities. Also another factor is the high inflation risk which brings down the profit on your investment.Money market funds are investments mostly in treasury bills. This is a safe investment option. Your returns may be twice that offered by banks, though not much your principal is safe.
Other varieties of mutual funds areo Growth funds are the investment in the equity of fast growing companies.o Specialty funds are the investment in equity of companies that are of the same sector or region.o A balanced fund is a combination of fixed income funds and equity funds. Asset allocation fund has objectives similar to that of a balanced fund.o Socially responsible funds do not invest in industries such as tobacco, alcoholic beverages, weapons or nuclear power. Maintaining a healthy conscience is a criterion of this fund.o Index funds replicated the performance of the market index such as Dow Jones or ‘Standard and Poor’s 500’http://www.fundsavvy.com is a site that gives you info on mutual fund basics , mutual fund investment etc. There are many more articles that could help you make a wise investment choice in the fund market.