How Do Mutual Funds Work ?
Mutual fund is a company by itself that pools in the like interests of several investors and again invests the funds collectively in diversified funds. It can invest in various kinds of investment options like stocks, funds, money markets, and bonds. The mutual fund is nothing but a consolidated portfolio managed by a fund manager. |
The fund manager will be an experienced and a professional person who handles the portfolio.
Also, periodically the fund manager may add newer companies to the portfolio and remove some non performing companies. This is called entry and exit of companies. The advantage that most people have with a mutual fund is that it is constantly managed and the fund manager takes care of it by keeping regular tabs. They also make decisions so that fund’s performance is in a higher level.
However, these days there is several computer software which can manage funds effectively. When the mutual fund is getting profits, then you get dividends as a return. When the mutual fund is running into losses, the value of your shares will go down. You can also see what shares the fund manager has invested in. mutual funds. Basically, your investment will be diversified wherein the investment will be made in various companies. It is this diversification which actually brings down the risk factor. Also, you are not risking all your money in one type of investment..
A mutual fund is a friendly type of investment and even people with no knowledge or minimum knowledge can opt for it. Also mutual funds can be bought or sold at any time.
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