can anyone explain the concept of mutual fund. Is this really beneficial ?

Answer 1

Mutual funds are appropriate for some and the wrong investment for a growing number of people.

Put another way, I would NOT invest in mutual funds if it weren't for having a 401K.

Overall, Mutual funds are not good (once you're educated about them) and you should not invest in mutual funds unless you have to (like if it were a requirement in a 401K).

Here's why.

First of all, mutual funds exist to take average person's money.

Second, mutual funds seem to be "happy" just to do better than the S&P index, since that's often the gauge. A monkey, yes monkey, can usually outpick most mutual funds. As was stated over 80% of the mutual funds out there can't even outperform the market. That's VERY SAD!

Third, mutual funds have embedded management fees in their costs. Most of these mgmt fees are 0.5% to 2% annually.

Fourth, most mutual funds exist not to earn you a lot of money, but are more interested in NOT "losing" you lots of money. That way you stay with them and they continue to collect their fees.

Fifth, mutual funds are not as liquid as one might think. If you're in mutual funds and a Bush talks in the morning and you call your broker to sell because the market is now tanking, the broker will gladly take your order, but the order will not be executed until the day is over and the negative impact is already priced into the fund.

Sixth, many mutual funds charge extra "fees" if you buy/sell their fund within a certain amount of time, meaning you must keep your money in the fund 90 days to 2 yrs before you're free from the fees (read the fine print on trying to get a withdrawal). These fees can be up to 3% or so of your money as well.

Seventh, mutual funds have to be in the market. So if the market is crashing or going down like it has between May and now, then the funds still have to be in the market and taking those losses too. With some practice, you can time your monies to avoid some of those losses (it'll take practice).

Convniced yet? Need more?

Eighth, mutual funds have to be pretty diversified and so if there are hot and cold sectors, they are probably in both the hot sectors and cold sectors. However, as an investor, you can buy into just the sectors you want, like metals, or housing, or energy, etc. or right now, Healthcare, Retail, and insurance!

Ninth, mutual funds are so big, they can only invest in certain companies. A small mutual fund with $10 billion in assets. 1% of that money is $100 million. How many companies are this big where $100 million investment isn't the whole company? Do you want to limit yourself to just those larger companies like microsoft, at&t, home depot, cisco, ebay which have been sideways for years? I think not.

A better way would be to buy ETFs (exchange traded funds) or holders. These trade like stocks, so are very liquid, and do not have the fees like the mutual funds. Further, you can buy/sell them as you wish. They represent sectors or indexes, so buying them gives you the same diversification as the sector/industry/index, but without the extra overhead!

See amex.com (american stock exchange) or ishares.com, holders.com for more info.


You need to invest for yourself. If you can't, then sure, use mutual funds. But be aware of the shortcomings (and as you can see, there are many).


Let me know if you have further questions.

Best of luck!

Answer 2

Mutual funds were more important pre internet. People couldn't keep track of stocks on a minute to minute bases so the only way to day trade was to literally be on the floor of the stock exchange. Also it was harder to get information from companies just because you had to watch the news or read the paper, which is time delayed so you didn't know if something important happened till 8-24 hours after the fact. That's along time since the market could crash and you wouldn't know it till it was too late. The mutual fund managers had theri eyes and ears open to major events so they were just a telephone call away from the CEO of these companies. Also stocks were sold in lots of 100, so you might have had to make a major investment to buy the stocks you wanted. With a mutual fund, those nickles and dimes (sometimes litterally) added up to be able to purchase the lots and stay diverse (a defensive posture).

Now with the internet, mutual funds are morphing along the lines of ETFs, which trade like stocks (some can even be shorted, unlike traditional mutual funds) but hold baskets of stock for diversity. You can even own a fraction of one stock or ETF so the 100 lot concept has gone away.

Traditional mutual funds still exist, especially in retirement funds. A new product there is the lifestyle/lifetime fund. They are marked with the approximate date of retirement (for instance fund 2030). What they do as the closer the day become, the new money shifts more toward bonds so when it started the new money went probabably 80 percent stocks and 20% bonds and when it is closing, the new money might be 80% bonds and 20% stocks. Just put your amount in whether it's $100 or $13,000 and let somebody else do the work.

Answer 3

A mutual fund is a group of investors that allow a manager to handle the money. The portions of the mutual funds are divided up into shares and you can buy them like stocks, but owning and selling your share is a little different. With mutual funds, you can't short a share like you can with a stock, you can only sell and buy at the end of the day price (so you can't put a stop loss on a mutual fund) and you pay internal taxes when people in the group sell their shares. You don't see these internal taxes, but they do affect your return. I would advise you to stay away from traditional mutual funds because only 20% have beat the SP500 and you can buy either an index fund that tracks the SP500 or an ETF that tracks the SP500. The big difference is when things get to hot for you, it's easier to bail, especially with an ETF. You can even short the index or ETF. Any stock broker (look in the phone book) can get you into an index or ETF.

Answer 4

Mutual fund is a company where you invest so that your money as well as others' money invested with them similarly are invested by the company, consisting of experts in the field, in profit making companies. You get divided in proportion to your investment, at regular interval. If you opt so, you may have the dividend reinvested into the fund for a further period. The Government these days, after the Harshad Mehta experience, encourage the investors to invest through the Mutual Fund companies, only. The MF experiment has not really taken off in big way in India.

Answer 5

Mutual funds are funds that usually invest in a group of stocks usually in a specific sector like real estate, banks, utilites..etc.

They are runned by a fund manager and charge a fee.

As for are they beneficial...from what I've read they aren't usually advised...Index funds have lower cost and usually perform better. Not to say there aren't good mutual funds...but there are plenty that underperform.

Go to http://www.fool.com/ it is an excellent website that does require registration, but it's free. They have some newsletters that cost money, but I've found all the free articles very helpful in explaining about mutual funds, index funds, dividends, money market accounts...basically everything about investing.

Answer 6

login www.easymf.com and get A to Z of mutual funds.Mutual funds are most beneficial for small investors on long term basis.You will get more return in mutual funds comparing Fixed Deposits.

Answer 7

Mutual fund running organisations are called trusts, they are the trustees of the peoples' money. what is mutual fund? it is the money pooled together from those individuals and institutions who want to grow along with the growth in the stock markets. what exactly is done by these mutual fund trusts. These trusts after collecting the money from the individuals and institutions invest in shares by way of purchasing of the shares of those companies which in future may rise in its market value.
The increase in the market value is termed as the benefit to the customers which is given in the form of returns calculated on daily basis.

There are mutual funds trusts which gave a returns of 100% and more in one year, close to 25% and more and so on.
The mutual fund trusts invest pooled money in various companies which are not from one industry alone such a buying of the shares from companies belonging to different industries and segments is a healthy allocation of the money of the investors which is called spread, such a spread minimises the risk of loss happening due to fall of the value of the shares of a particular segment/industry.

The mutual fund growth depends on the market behaviour, spread of the investment, the kind of fund it is, the horizon/tenure for which it is kept invested ofcourse the fund manager who manages the fund etc.

However It is beneficial to invest in mutual fund than to invest in banks or with the governmental securities etc.

Answer 8

Hi mutual funds are for the beginners the one who donot know about the market that which share i s benifical for him. The company which are issuing there Mutual fund products took the services of the professinals which look after the market who invest are money in most appropriate way they can.

Answer 9

Mutual fund is the way of availing the expertise of the fund manager who manages our money on our behalf. Since the price of stock/shares is affected by many factors , we cannot analyse the impact of each factor on the stock we hold .Neither we are able to keep ourselves updated on the developments on the companies of which we hold the shares.

The fund manager is a qualified person to analyse this and since managing money is his full time job he is RELATIVELY BETTER IN MANAGING THE MONEY THAN US. Here the assumption we make that investing in stock market is not our full time job/activity.

As regards to the benefit of investing in mutual funds. The depends on the TIME HORIZON and the RISK APATITE of the investor.

Answer 10

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Good Luck and Best Wishes!