what is mutual fund?

Answer 1

A mutual fund is a group of investors operating through a fund manager to purchase a diverse portfolio of stocks or bonds. There are myriad kinds of mutual funds, each with its own goals and methodologies. Whether or not a mutual fund is a good investment is a matter of much public debate, with many claiming they are excellent for the average person, and others saying they are simply a poor way to invest.

A mutual fund may be either an actively managed fund or an indexed mutual fund. Actively managed funds are changed on a regular basis by a fund manager in the attempt to maximize their profitability. They fund manager looks at the market and the sectors a fund invests in and redistributes the fund accordingly. An indexed fund simply takes one of the major indexes and buys according to that index. Indexed funds change much less frequently than actively managed funds, but in theory an active fund has more potential for profit.

Many critics of mutual funds point out that scarcely over 20% of mutual funds outperform the Standard and Poor's 500 Index. This means that nearly 80% of the time, an investor would have been more profitable by simply buying equal shares in all 500 of the companies currently on the S&P 500.

Supporters point out that for most people the complications involved in traditional investment are simply not worth the effort. A mutual fund offers an easy way to invest in something with a higher return than, say, interest earned at the bank, while keeping funds somewhat fluid. It also eliminates the need to track the market oneself.

There are more types of mutual fund available than there are publicly traded stocks, making the process of choosing one a somewhat daunting prospect for most people. In general, it is good to look at a few types of mutual fund that catch your eye and investigate them to see if they fit your needs. The length of time you want to remain invested, associated costs, tax status, and whether a fund is closed- or open-ended may all prove important.

The sector of investment for a mutual fund may also be something you want to look at. Many sector funds exist, and they are most often the top-performing mutual funds in a given year. The problem, of course, is guessing which sector will next see uniform growth, and avoiding sectors that can be hard-hit by single events, such as transportation.

Many people may also want to consider mutual funds which have specific social agendas, in addition to making a profit. A number of environmentally-friendly mutual funds exist which only invest in companies that meet certain best-practices criteria. Mutual funds based on other social views, political slants, and religious inclinations also exist.

Whichever mutual fund you ultimately wind up using, it is important to stay diversified. Having some money in long-term funds and stocks, with some in money-market funds and bonds, is always a smart way to plan for the future and any bumps that may occur in the market.

Answer 2

The mutual fund concept was created before the internet and before electricity. There were several reasons why they were created. Mutual funds were createdby brokers that manage these funds.

It's easier to diverse since a person with $100 could be in several stocks at once because he is with several dozen or even several hundred other people that also put down $100. Remember RCA in 1929 traded for $420 a share. Stocks were traded in lots of 100 so you needed $42,000 in 1929 plus buy and sell fees just to buy RCA. In order to own some RCA, the money had to be pooled.

Trades were real time because the brokers had access to the floor and handled by people that knew what they were doing. So some guy in a tent in Alaska had the same chance in stocks as somebody in living across from the stock exchange. The floor was the only place real time trades could take place and still do on some exchanges.

The buy and sell fees are also less if not free. The brokers make their money by skimming off the gross 1 or 2% a year. If they are handling $1 billion, they are making $1 million a year.

Answer 3

Hi, I'm Sean Toh from Singapore. What is mutual fund? Here is a detail answer what mutual fund is.

A mutual fund is an investment intermediary by which people can pool their money and invest it according to a predetermined objective.

Each investor of the mutual fund gets a share of the pool proportionate to the initial investment that he makes. The capital of the mutual fund is divided into shares or units and investors get a number of units proportionate to their investment.

The investment objective of the mutual fund is always decided beforehand. Mutual funds invest in bonds, stocks, money-market instruments, real estate, commodities or other investments or many times a combination of any of these.

The details regarding the funds’ policies, objectives, charges, services etc are all available in the fund’s prospectus and every investor should go through the prospectus before investing in a mutual fund.

The investment decisions for the pool capital are made by a fund manager (or managers). The fund manager decides what securities are to be bought and in what quantity.

The value of units changes with change in aggregate value of the investments made by the mutual fund.

The value of each share or unit of the mutual fund is called NAV (Net Asset Value).

Different funds have different risk – reward profile. A mutual fund that invests in stocks is a greater risk investment than a mutual fund that invests in government bonds. The value of stocks can go down resulting in a loss for the investor, but money invested in bonds is safe (unless the Government defaults – which is rare.) At the same time the greater risk in stocks also presents an opportunity for higher returns. Stocks can go up to any limit, but returns from government bonds are limited to the interest rate offered by the government.

I hope I have given you a very detailed answer to your question. For more resources, click the links below.

Yours Sincerely
Sean Toh
Author of Four Steps To Financial Freedom

Answer 4

To make things simple, the most basic type of investment you can have is a stock or a bond. A mutual fund is basically a collection of investments in stocks or bonds, which is a less riskier than directly in stocks. Mutual funds are actively managed by an fund manager that buys and sells stocks/bonds for you on your behalf. There is a management fee associated with the fund because they are doing their research for you. You can invest in an index fund, which is passively managed. It is basically the same as a mutual fund but attempts to match a certain index or benchmark. For example, a fund can try to match the S& P 500 index by purchasing stocks in equal proportions similar to that index. Index funds have lower fees because they aren't actively managed like their counterparts are. Good luck with everything!

Answer 5

A mutual fund is where a group of people combine their money to purchase a variety of stocks and bonds. The purpose of this is to minimize the risk of investment, and to be able to purchase different types of stocks and bonds with limited funds. It is not a good way to make money fast, but if the market is in an expansion it is possible to make significant profit over a long period of time.

Answer 6

The Securities and Exchange Commission describes it like this:
"A mutual fund is a company that brings together money from many people and invests it in stocks, bonds or other assets. The combined holdings of stocks, bonds or other assets the fund owns are known as its portfolio. Each investor in the fund owns shares, which represent a part of these holdings." Their web site is:
http://www.sec.gov/investor/tools/mfcc/mutual-fund-help.htm

More web sites on mutual funds are as follows:
http://www.investorwords.com/3173/mutual_fund.html

http://en.wikipedia.org/wiki/Mutual_fund

Answer 7

Imagine a pool with children inside. On the outside there are lifeguards watching over those children inside. This is exactly what a mutual fund is. A pool of stocks or bonds (children) being professionally managed or watched over by money managers (life guards).

Answer 8

there are also mofunds, mutual funds that invest in mutual funds. in any case, if you buy mutual funds, buy no-load.