What Can Mutual Funds Offer Me?

Mutual funds are a popular investment vehicle simply because they offer a number of features to suit the objectives of many types of investors. They provide a number of features, including built-in diversification, professional management, convenience, low investment minimums, and a wealth of investment choices all in one package.

What Is a Mutual Fund?

A mutual fund is a pooled investment. When you buy shares in a mutual fund, you are buying shares in a professionally managed portfolio of stocks, bonds, or other securities. Investment managers are responsible for buying and selling securities according to specific investment objectives.

Diversification

Buying shares of a mutual fund gives you built-in diversification. A single mutual fund holds many different securities.

Mutual funds may diversify within asset classes; for example, a growth fund may invest in a portfolio of stocks. Or the fund may diversify across asset classes —when a balanced mutual fund invests in a variety of stocks and bonds, for instance.

Whatever the case, diversification generally reduces investment risk and provides the potential for better long-term returns.

Professional Management

When you buy into a mutual fund, investment professionals manage your money. They carefully research, select, and supervise all the assets in the mutual fund. This frees you from having to select and track individual investments. When you invest in mutual funds, you get access to some of the finest investment minds on Wall Street.

You should remember that past performance is no guarantee of future results. The value of your shares will fluctuate with the changes in market conditions, and when sold may be worth more or less than the original investment amount.

Flexibility

Often, mutual funds belong to a mutual fund family. You may be able to shift your investment among different types of mutual funds, often with no more than a phone call. That way your portfolio can easily be tailored to suit your financial situation and your expectations about the market.

Convenience

Mutual funds make managing your portfolio very easy.

Periodic statements will fill you in on the performance of your mutual fund, transactions within your account, and more. You’ll also be kept informed about the taxability of your distributions.

Low Investment Minimum

Finally, many mutual funds offer low initial investment amounts – some as low as $1,000, and in other cases, even less. Mutual fund fees also vary and can be lower than other investment alternatives. Mutual funds are offered by prospectus, which contains complete information about the objectives, risk, fees and minimum investment amounts. It should be read carefully before investing.

All in all, mutual funds offer a variety of benefits. In many cases, they are ideal investment vehicles for experienced and beginning investors.

© 2003 Emerald Publications