How to Invest in Mutual Funds?

August 25, 2017

Investing

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Looking for an investment plan? Try mutual funds because it is the easiest and the least demanding of all the investment options available in the market. If you are thinking about investing in mutual fund, know the nuts and bolts of the mutual funds and investing in them to know exactly what you are getting in to and how they work. Here’s a quick foundation on the topic of mutual funds to get you started.

What is a mutual fund?

A mutual fund is a pool of money invested by multiple investors to invest in investment products like stocks, securities, bonds and short-term debt. The investors for a mutual fund are generally a group of individual investors as well as companies and other organizations. They collectively hire a fund manager to invest the money that has been collectively contributed by all. The fund manager would either be a fixed income manager or a long-term growth manager would depend on the goal that the manager has decided to achieve.

Different Types of Mutual Funds

There are different types of mutual funds available and those are divided along four lines: closed-end and open-ended funds; and the open-ended fund is subdivided into load and no load funds.

  • Closed-End Funds

The close-end fund has a definite set of shares set open for the public through an initial public offering. These are traded in the open market and they are normally traded at a discount or a net asset value.

  • Open-End Funds

Most of the mutual funds are open-ended with no specification on the number of shares. Shares for the open-end funds are issued to the investor on the basis of the current net asset value they are redeemable in nature i.e. they could be sold and bought again. Shares of the open-end funds will always reflect the net asset value because they created and destroyed as and when necessary.

Load vs. No Load

In the mutual fund world a load is described as a sales commission. If a fund charges a load, the investor is expected to pay the sales commission on top of the net asset value of the fund’s shares. The no-load funds always generate higher returns for investors due to the lower expenses associated with ownership.

Benefits of investing in a mutual fund

The mutual funds are constantly and closely monitored by a professional fund manager who devotes his time and energy to select the most profitable investment for the investors. An investor therefore enjoys a stress-free investment period.

Which is the right mutual fund for me to invest in?

Every individual has a financial goal and a strategy. While investing in a mutual fund go for a particular fund that aligns with your strategy and financial goals. Every fund manager has a specific style and strategy for investment therefore know and understand their style before investing.