whats a mutual fund, how does it work?

Question

I like to invest in a mutual fund, before that i like to know , whats a mutual fund, how does its work,

Answer 1

It is an investment company that makes investments on behalf of individuals who share common financial goals. In simple terms, there are a pool of investors such as you and me who invest their money through a portfolio manager. This portfolio manager will use these investments to buy stocks of different companies to meet the fund's objective. There can be as little as 25 companies or over 100 different companies in a mutual fund. With so many companies or stocks in a mutual fund, a mutual fund is considered to be diversified. Diversification leads to lower risk because your investment is spread over several companies. The great thing about having a mutual fund is that you don't have to worry about which stocks you should buy and when to sell. The portfolio manager takes care of all that for you.

So, 4 things you should remember about a mutual fund:
1) They are professionally managed. That means there are one or two portfolio managers who has many years of investing experience.
2) They are diversified. This means that a mutual fund invests in many companies, some of which you already know or heard of such as Disney or Microsoft.
3) There are variety of objectives. You have an investment objective and only a few mutual funds can meet that objective.
4) They are easily liquidable. It takes at most, 7 days to get your money when you sell your shares.

Things you should do when choosing a mutual fund:
1) Obtain a prospectus, which is a small booklet that contains lots of information about that particular mutual fund you are looking at.
2) Check if this fund's objective is meeting your investment objective.
3) Check the past performance of this fund. While past performance cannot guarantee future results, it gives a good indicator on how well the fund has been managed.
4) Check its sales charge. Studies has shown that Class A shares or Class B shares has no distinct advantage over the other. Whether you pick Class A or Class B, its totally up to you. Class A shares mean you pay an upfront sales charge. Class B shares mean you don't pay any sales charge when you invest, but if you redeem the shares in the first 5-8 years, you will pay a sales charge on the shares you are selling. Class B shares become Class A shares after 8 years. I would avoid "no load" funds. "No load" funds has no sales charge, but has very high expense ratio.
5) Check its expense ratio, which is usually shown in the tables near the end of the prospectus. You want to pick funds with a low expense ratio since this will effect the rate of return of your porftolio over the long run.
6) Check its turnover ratio. A fund with a high turnover ratio (anything above 50%) is never good. The turnover ratio means how often a fund sells and buys shares of a stock. If the fund is constantly trading, it incur costs each time it buy and sell shares of a stock.

Things you should do when investing in mutual funds:
1) Ignore all headlines and news media since they don't provide any details or information about the mutual fund.
2) Depending on your income level, you maybe able to put your funds in a tax-deferred account such as a Roth IRA. If you have kids and want to start a college fund, invest in 529 Plans. Tax-deferred accounts always have a higher capital gain advantage over taxable accounts.
3) You should setup a systematic investing plan with your mutual fund(s). This means, you invest your money each month. When you setup a systematic investing plan, you give your bank account number to the fund and the fund will automatically take money out of your bank account on the same day each month. With most funds, the minimum to invest systematically is $25/month. Why systematic invest? On some months, price of a share maybe high, so you buy fewer shares of that fund. On other months, price of a share maybe low, so you buy more shares of the fund. This is known as dollar cost averaging, which lowers the cost per share.
4) Never pull out when stock market crashes. This is only a temporary phase. Instead of pulling out, you should continue to invest. Since prices are so low, you can buy lots of shares. While they don't worth much at that moment in time, the stock market will always rebound.
5) Over time, your investment objective will change. So, you need to make some changes in your portfolio as well.
6) Stick within the same fund family. For example, if you invest in Legg Mason Partners Fund (formerly known as Smith Barney), then pick mutual funds from this family. Don't mix your portfolio with so many different families. Investing in two fund families is good enough such as Legg Mason and Van Kampen. Though, its up to you on whether you want to invest with other fund families. The reason why I don't mix my portfolio with so many different families is because of the sales discount. If the value of all my mutual funds (including your spouse and children under age 21) in the same fund family meets a certain limit, which is $25,000, I get a sales charge discount. The lower the sales charge, the more of my money is being invested.
7) The earlier you invest, the less you need to save toward retirement. So, stop procastinating, stop saying "I don't have any money" because you can invest as little as $25/month and start saving!

Answer 2

When you invest in a mutual fund, you get a portion of the fund, or a number of units. Your units, along with units held by other investors, represent ownership in the fund. The mutual fund company invests the money based on specific goals and procedures that it must state, by law, in a document called a simplified prospectus. The prospectus can be a bit intimidating because even if it is written in simple language, it may still be fairly complex. The main points to look for are the fund’s investment objective, any fees and expenses, and how to buy and sell your units.
Most funds hold a variety or number of investments at any given time. And the holdings in a fund will differ depending on its objectives and the style of the fund manager. The act of buying and selling investments, changes in interest rates and economic trends influence the value of the individual investments in a fund’s portfolio and can cause the value of a fund to fluctuate daily. This means the value of your units in a fund can go up or down from day to day. Some fund prices will rise and fall more than others.

It’s important to understand the objectives of each fund so you can make sure you are investing in a fund that suits you. If you’re investing for the short term (for example, to buy a home), you probably want an investment that doesn’t fluctuate very much. If you’re investing for a bit longer (for a child’s post-secondary education, for example), you can tolerate some fluctuations in value. And if you are investing for the long term (for your retirement), you shouldn't worry about short-term fluctuations.

Answer 3

Do some real research (not asking for advice from friends or strangers). Check out Kiplingers magazine or talk to your HR rep at work or contact one of the more reputable investment firms (the big ones provide advice but be aware they will push their own products).

A mutual fund is an "account" set up by an organization that invests your money for you. Depending upon how the fund is set up it will invest your money in particular ways (technology, small businesses, Japanese film) at particular levels of risk (small, medium, large) with certain objectives (quick turnaround, long term invest). Basically, you are putting your money in someone else's hands.
I recommend you only invest in mutual funds if you are in it for the long haul. Watching the daily behavior of your funds is unnerving while mutual funds are intended to be a 5+ year return.

The best thing is to get advice from experts and don't just pick the first funds that look good. Some are pretty stable (like real estate) others promise high returns, but also have high risk.

Good luck!

Answer 4

WITH OUT PAN CARD U INVEST RS 49,000 INR IN MUTUAL FUND. THE SCHEME CALLED SIP(IN THIS METHOD U PAY 500 RS ALSO...) SIP IS MONTHLY YOU PAY FOR MINIMUM 12 MONTHS OR24 OR 36 OR 48. IN ONE TIME MEANS YOU PAY MINIMUM 2000 AND MAXIMUMHOWMUCHU HAVE. MY SUGGESTION IS AT PRESENT HDFC MUTUAL FUNDS IS GOOD.. TRY IT... A mutual fund is a pool of money that is professionally managed for the benefit of all shareholders. As an investor in a mutual fund, you own a portion of the fund, sharing in any increases or decreases in the value of the fund. A mutual fund may focus on stocks, bonds, cash, or a combination of these asset classes.

Answer 5

A mutual fund is a form of collective investment that pools money from many investors and invests their money in stocks, bonds, short-term money market instruments, and/or other securities.[1] In a mutual fund, the fund manager trades the fund's underlying securities, realizing capital gains or losses, and collects the dividend or interest income. The investment proceeds are then passed along to the individual investors. The value of a share of the mutual fund, known as the net asset value per share (NAV), is calculated daily based on the total value of the fund divided by the number of shares currently issued and outstanding.

Legally known as an "open-end company" under the Investment Company Act of 1940 (the primary regulatory statute governing investment companies), a mutual fund is one of three basic types of investment companies available in the United States.[2] Outside of the U.S. (with the exception of Canada, which follows the U.S. model), mutual fund is a generic term for various types of collective investment vehicle. In the U.K. and western Europe (including offshore jurisdictions), other forms of collective investment vehicle are prevalent, including unit trusts, open-ended investment companies (OEICs), SICAVs and unitized insurance funds.

In Australia the term "mutual fund" is not used; the name "managed fund" is used instead. However, "managed fund" is somewhat generic as the definition of a managed fund in Australia is any vehicle in which investors' money is managed by a third party (NB: usually an investment professional or organization). Most managed funds are open-ended (i.e., there is no established maximum number of shares that can be issued); however, this need not be the case. Additionally the Australian government introduced a compulsory superannuation/pension scheme which, although strictly speaking a managed fund, is rarely identified by this term and is instead called a "superannuation fund" because of its special tax concessions and restrictions on when money invested in it can be accessed.

Usage

Mutual funds can invest in many different kinds of securities. The most common are cash, stock, and bonds, but there are hundreds of sub-categories. Stock funds, for instance, can invest primarily in the shares of a particular industry, such as technology or utilities. These are known as sector funds. Bond funds can vary according to risk (e.g., high-yield or junk bonds, investment-grade corporate bonds), type of issuers (e.g., government agencies, corporations, or municipalities), or maturity of the bonds (short- or long-term). Both stock and bond funds can invest in primarily U.S. securities (domestic funds), both U.S. and foreign securities (global funds), or primarily foreign securities (international funds).

Most mutual funds' investment portfolios are continually adjusted under the supervision of a professional manager, who forecasts the future performance of investments appropriate for the fund and chooses those which he or she believes will most closely match the fund's stated investment objective. A mutual fund is administered through a parent management company, which may hire or fire fund managers.

Mutual funds are subject to a special set of regulatory, accounting, and tax rules. Unlike most other types of business entities, they are not taxed on their income as long as they distribute substantially all of it to their shareholders. Also, the type of income they earn is often unchanged as it passes through to the shareholders. Mutual fund distributions of tax-free municipal bond income are also tax-free to the shareholder. Taxable distributions can be either ordinary income or capital gains, depending on how the fund earned those distributions.

Answer 6

I'm not really sure what's "mutual fund" but believe it or not, I'm actually investing my money in a mutual fund now. Thanks to Aramaiya for his explaination.

Just to share with you what kind of mutual fund I'm investing in right now... It's called ForexCapital FC Mutual Fund. It has the ability to access global and financial markets in U.S., Japan, Germany, Korea, Australia, Netherlands, Switzerland, France and Hong Kong. It's team provides a portal to institutional investment management and commercial lending groups. ForexCapital FC seeks to make your money grow by actively investing in a wide range of global equities. It is managed by the highly experienced professionals specializing in options, bonds, projects and other areas. They monitor economic and capital developments closely so that they are able to act swiftly to any market changes as well as anticipate trends.

This Investment was originally created to help the individual investor increase their capital by using us as their financial instrument to reach financial freedom. Our mission is to provide our investors with a stable value investment opportunity for their capital.

They have set several plans to fit all investor's needs.In order to participate you need to register and invest a minimum of USD$100 with till the maximum investment up to USD$10,000. You will find the highest return rates here. Their extremely unique program ensures you and everyone you refer gets paid.

It's a 9 months investment plan with the following interest rates:-
Medium Account (U$100 - 199) 1.20%
Standard Account (U$200 - 999) 1.50%
VIP Account (U$1000 - 10,000) 1.70%
All payments are made to your account daily.
Minimum spend is US$100 and maximum is US$10,000.
You may make additional spend as many times as you like.

The referral bonus for as follow:-
For your immediate line 1 or more Trade Investor 10 %
* All payments are made to your account Once with the Deposit Spend..
** Minimum spend is US$100 and maximum is US$10,000.
*** You may make additional spend as many times as you like.

This month shall be the second month of my investment. After 3 months, I will be able to get back all the money that I've invested and the rest of the 6 months will be my profit!

If you need more info, feel free to contact me.

Answer 7

A mutual fund is a form of collective investment that pools money from many investors and invests their money in stocks, bonds, short-term money market instruments, and/or other securities. In a mutual fund, the fund manager trades the fund's underlying securities, realizing capital gains or losses, and collects the dividend or interest income. The investment proceeds are then passed along to the individual investors. The value of a share of the mutual fund, known as the net asset value per share (NAV), is calculated daily based on the total value of the fund divided by the number of shares currently issued and outstanding.

Legally known as an "open-end company" under the Investment Company Act of 1956 (the primary regulatory statute governing investment companies), a mutual fund is one of three basic types of investment companies available in India. Outside of the U.S. (with the exception of Canada, which follows the U.S. model), mutual fund is a generic term for various types of collective investment vehicle. In the U.K. and western Europe (including offshore jurisdictions), other forms of collective investment vehicle are prevalent, including unit trusts, open-ended investment companies (OEICs), SICAVs and unitized insurance funds.

In Australia the term "mutual fund" is not used; the name "managed fund" is used instead. However, "managed fund" is somewhat generic as the definition of a managed fund in Australia is any vehicle in which investors' money is managed by a third party (NB: usually an investment professional or organization). Most managed funds are open-ended (i.e., there is no established maximum number of shares that can be issued); however, this need not be the case. Additionally the Australian government introduced a compulsory superannuation/pension scheme which, although strictly speaking a managed fund, is rarely identified by this term and is instead called a "superannuation fund" because of its special tax concessions and restrictions on when money invested in it can be accessed.

Usage

Mutual funds can invest in many different kinds of securities. The most common are cash, stock, and bonds, but there are hundreds of sub-categories. Stock funds, for instance, can invest primarily in the shares of a particular industry, such as technology or utilities. These are known as sector funds. Bond funds can vary according to risk (e.g., high-yield or junk bonds, investment-grade corporate bonds), type of issuers (e.g., government agencies, corporations, or municipalities), or maturity of the bonds (short- or long-term). Both stock and bond funds can invest in primarily U.S. securities (domestic funds), both U.S. and foreign securities (global funds), or primarily foreign securities (international funds).

Most mutual funds' investment portfolios are continually adjusted under the supervision of a professional manager, who forecasts the future performance of investments appropriate for the fund and chooses those which he or she believes will most closely match the fund's stated investment objective. A mutual fund is administered through a parent management company, which may hire or fire fund managers.

Mutual funds are subject to a special set of regulatory, accounting, and tax rules. Unlike most other types of business entities, they are not taxed on their income as long as they distribute substantially all of it to their shareholders. Also, the type of income they earn is often unchanged as it passes through to the shareholders. Mutual fund distributions of tax-free municipal bond income are also tax-free to the shareholder. Taxable distributions can be either ordinary income or capital gains, depending on how the fund earned those distributions.

[edit]
Net asset value
Main article: net asset value

The net asset value, or NAV, is the current market value of a fund's holdings, usually expressed as a per-share amount. For most funds, the NAV is determined daily, after the close of trading on some specified financial exchange, but some funds update their NAV multiple times during the trading day. Open-end funds sell and redeem their shares at the NAV, and so process orders only after the NAV is determined. Closed-end funds (the shares of which are traded by investors) may trade at a higher or lower price than their NAV; this is known as a premium or discount, respectively. If a fund is divided into multiple classes of shares, each class will typically have its own NAV, reflecting differences in fees and expenses paid by the different classes.

Some mutual funds own securities which are not regularly traded on any formal exchange. These may be shares in very small or bankrupt companies; they may be derivatives; or they may be private investments in unregistered financial instruments (such as stock in a non-public company). In the absence of a public market for these securities, it is the responsibility of the fund manager to form an estimate of their value when computing the NAV. How much of a fund's assets may be invested in such securities is stated in the fund's prospectus.

Answer 8

if small investment MF is OK

details onmy blog & other ans

Answer 9

1. Give people your money
2. ???
3. Profit!