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There are many options available to meet the needs of investing for retirement, saving for a new home or for your children’s future. Increasingly investors have turned to mutual funds, but what is a mutual fund and how can investing in them help to meet your financial goals?
A mutual fund is an investment vehicle that pools money from investors who share a similar investment objective and invests the money in stocks, bonds, cash and cash equivalents, or other securities.
Mutual funds are managed by professional investment managers who select and manage the securities held in the fund while the investors share in the fund’s income, expenses, and any gains or losses the fund makes on its investments, in proportion to the shares they own.
There are many types of mutual funds with differing objectives to meet investor’s needs. In general there are four basic types: equity funds, fixed income funds, balanced funds and money market funds.
Mutual Fund Types
There are other distinctions among mutual funds that involve different investment styles and investment focuses. These distinctions have created a broad selection of mutual funds, to meet every investor’s need and include the following:
A diverse range of options designed to meet investor’s unique objectives is only one of the many benefits of investing in mutual funds.
Mutual funds offer many benefits to help you meet your investment objectives.
Professional management. Mutual funds offer investors access to full time, professional money managers who have the expertise, experience and resources to actively buy, sell and monitor investments.
Affordability. Initial investments in most funds are reasonable for the average investor and the requirements for additional investments are lower than initial investment requirements.
Diversification. An investment in a mutual fund generally includes a number of different securities. For example, diversified stock fund portfolios usually hold an array of stocks representing different companies, different industries and perhaps even different nations. Diversification can help reduce the financial risk inherent in investing. If one investment decreases in value, another investment in the portfolio may increase.
Flexibility. Many mutual funds are part of a "family of funds" and you can exchange your shares from one fund to another in the same family when your investment objectives change. For example, Franklin Templeton Investments offers Franklin, Templeton and Franklin Mutual Series funds.
Liquidity. This means it is easy to withdraw some or all of the money you have invested. With proper written notice you can usually get the money you have requested within 7 business days. Of course, the value of the shares you redeem may be more or less than your original cost.
The value of a mutual fund is equal to the total market value of all securities and cash held within that fund. Referred to as Net asset value per share (NAV), this value is calculated daily and changes with the rise or fall in the market value of the underlying assets held by the fund.