If you are looking into various types of mutual funds, you will soon find that the options available are seemingly endless. However, by narrowing down what types of mutual funds appeal to you most, and then checking your interests with an independent organization that evaluates mutual fund performance and fees (like www.morningstar.com), you'll find yourself ready to make an investment you can feel good about.
A mutual fund is a professionally managed firm that collects money from investors and then invests in a variety of stocks, bonds and other investment vehicles. The goal is to yield profits for the investors with less risk or volatility than is undertaken when an individual invests in a few stocks or bonds on her own.
Next, you have to understand the difference between index funds and mutual funds:
Index funds are not actively managed but are built to mimic the ups and downs of a particular index. Examples are the Dow Jones, S&P500 or NASDAQ, all of which have index funds tied to them. You can also buy index funds that are focused on an industry, such as the semi-conductor industry.
Mutual funds are actively managed. What this means is a fund manager or a team of managers will decide which stocks to invest in and how much they will invest in those stocks. With an index fund, the percentages invested in each stock are predetermined.
Now that index funds have been taken out of the mix, mutual funds are divided into two types: load or no-load mutual funds.
Load mutual funds charge you a certain percentage for the services of the managers. You will be charged either the full amount up front, or you will be charged partially up front and partially when you sell. You may also be charged the full fee when you sell. This load fee is in addition to and separate from any transaction fee. Portions of this load fee may go to the broker who sold you the mutual fund or the financial advisor who sold you the fund.
No-load mutual funds do not charge any upfront or closing fees, just the transaction fee.
Some advisors will tell you to stick with no-load mutual funds because you will save money on those fees, but others say the load funds are superior funds that will make up in returns any differences of the load fees paid (and then some). Check with your advisor to see if they have a vested interest in selling you a particular load fund. If your advisor will get a percentage of the load fee, obviously they have a reason to steer you toward investing in that mutual fund, whether it is truly in your best interest or not.
Once you know which funds are professionally managed and how much those managers charge, you can start looking at the funds' specific investments. Here are two fund types:
Stock mutual funds are linked only to the performances of particular stocks. For example, with international mutual funds, the stocks and bonds tied to the fund are from all around the globe. International mutual funds are useful for protecting you against a downturn in one particular market or part of the world, since your investments will be tied to all kinds of markets, not just the US economy.
Bear mutual funds go up when the stock market goes down. These are risky in the long run because the US economy usually grows, but, in times of economic downturn, they may be a way to ride out the storm.
And that's only the beginning. A broker or financial advisor can help guide you, as it seems there is a mutual fund for every mood.
 | Mutual funds allow you to invest in a diversified mix of stocks, bonds or money market funds through a single transaction. Before you invest, you should understand the different types of mutual funds, how they invest and how to compare their performance. |
 | Mutual fund fees often serve a justifiable purpose, but they can also have a noticeable affect on an investment's bottom-line return. Paying fees isn't always a bad idea, but you'll need to research the fees charged, as well as when they're charged, to minimize their effect on your investments. |
Do you know about common mutual fund disadvantages? While mutual funds can work out well for investors, they can have a down side if you don't do your homework. |
There are many sources where it is possible to buy mutual funds. Banks, Insurance companies, brokerage houses, discount brokers and advisers, and mutual fund companies have a means of buying and selling mutual funds through them. |
There are close to 80 million people in America that are investing in mutual funds, and that is a huge number. It is no wonder that mutual fund investing is almost a household name and there are a good number of companies that are providing a closely watched and regulated service. |
