Mutual Funds

What are mutual funds? A mutual fund is an investment scheme which takes money from numerous investors and is used in bonds, stocks, securities, etc. World wide the value of mutual funds is an excess of 27 trillion. Mutual funds have a manager assigned which trades daily with the money invested in that mutual fund. There are several types of mutual funds such as open ended funds, exchange traded funds, equity funds, bond funds, hedge funds, money market funds, funds of funds.

Why should you invest in mutual funds?

The biggest and most profound reason is the diversity of which you have to work with which can increase your returns with a lower risk involved. Mutual funds allow you the option to spread out your money with hundreds of companies at one time. Having the ability to have a professional manage your assets is also a plus as they can monitor your investments and make investments for you. This is generally used for people who do not have the time or the knowledge to look after there own investment portfolio.

The disadvantages of Mutual Funds:

Professional management can be seen as a pro and a con. There are many people who will challenge the thought of whether a professional manager can be any better then you in picking stocks. Professional management is by no means fault proof and whether or not you make or lose money in your portfolio, the manager still takes their pay. There is also costs involved which in many cases are hidden. Generally speaking, most people who are fairly new to mutual funds or have hired professional management to review their portfolio's don't realize the costs involved due to complexity of the costs structure. Also taxes can effect whether or not a security is sold due to capital gains taxes. Your personal tax situation can determine how profitable an investor will be from the sale of the security but often a professional manager will not consider your personal tax situation before making the sale which will hinder the possible profitability of the sale.