A mutual fund
pools money from many investors who share
the same investment objective as the fund.
Mutual funds give everyday investors a
variety of investment opportunities. For
people who don’t have the knowledge, time or
money to create a portfolio of individual
securities, mutual funds offer important
benefits.
Professional management
Investors benefit from the knowledge and
experience of professional investment
managers who are dedicated to security
analysis, evaluation and selection.
Liquidity
Investors have immediate access to their
money by selling shares at the fund’s net
asset value, which is determined at the end
of each trading day.
Diversification
Not “putting all your eggs in one basket”
is an important way to limit risk. Because
mutual funds generally invest in a wide
range of securities, like stocks and bonds,
they provide immediate diversification. And
because mutual funds are sold in shares, no
matter how much you invest, you own a
proportionate amount of all the fund‘s
holdings.
Simplicity
Custody, tax reporting and record-keeping
are among the many ser-vices mutual fund
companies provide in a highly cost-effective
manner. Many also provide investors with a
wide array of shareholder services,
including quarterly reports, duplicate
statements, fund performance updates and
extended hours during tax season.
Study the route
There are over 10,000 mutual funds
available to investors! If you’re new to
investing, you might feel overwhelmed. But
don’t worry—most mutual funds can be
classified into three broad categories
according to the type of financial assets
they hold. These categories offer different
levels of investment risk. A good guideline:
the higher the risk, the higher the
potential return, and the lower the risk,
the lower the potential return.
Money Market Fund
A mutual fund whose portfolio is made up
of short-term (usually 90 days or less), low
risk securities, such as commercial paper
(i.e., short-term corporate IOUs) or
certificates of deposit. Because they are
low risk, they tend to offer lower returns.
Bond Fund
A mutual fund whose portfolio is made up
of mostly fixed-income securities (i.e.,
bonds). While there are various types of
bond funds, most offer low to moderate
levels of both risk and return.
Stock Fund
A mutual fund whose portfolio is made up
of mostly stocks. In exchange for higher
risk, the fund’s objective is usually geared
towards earning higher returns.
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