Mutual funds are investments held by a number of different people. Investors pool their money together and entrust it to a
professional money manager who buys and sells securities based on the fund's objective. A fund may be comprised of stocks,
bonds, cash, property, or any combination of these.
You purchase "shares" in a mutual fund, just as you
do with individual stock. However, mutual funds are diversified - holding shares in a greater number of securities than any
single investor is likely to buy on their own. The mutual fund's shareholders share the costs of buying the investments,
and they also share in the proceeds from the fund's growth.
Mutual (or managed) funds are a great option if
you are uncertain about what stock or bond to invest in. The fund gives you security in diversification and the knowledge
that the fund is being managed by a professional.
However, managed funds are equally susceptible to the volatility
of the global market (although less susceptible to the risk of a single company not performing) and there are fees associated
with paying the professional fund manager.
And of course there are different types of funds too – again,
depending on your risk tolerance and objectives. Funds can be:
Once again the important thing is to do your research before you invest in any fund –
understand the risks, the likely returns and the period of investment. – and make sure these fit in with your personal
- Money-Market Funds – essentially
a cash fund, so low risk and low return.
- Bond Funds – the fund invests in bonds and securities
that pay both dividends and interest.
- Stock Funds – these funds invest in a diverse range of
stocks. Funds can focus on growth stocks, value stocks or a balanced portfolio of stocks. Stock funds can be aggressive high
risk (high return) funds or may invest in a more conservative portfolio depending on your objectives.
Funds – divide investments between stock, bond, cash and even property investments. Balanced funds are typically
low risk, with a moderate return.
- International and Global Funds – these funds invest in foreign
funds and securities as well as securities at –home.
- Specialized Funds - Concentrate on a particular
industry or country.