A mutual fund is basically an open-ended professionally managed investment fund which pools cash from several different investors to buy various securities. The most common types of mutual funds are direct, fund and bond funds. They all have one common goal, that the investor should create a profit for all of the investors. By pooling money from a variety of investors, the investor hopes to create a substantial profit for each of them.
Investors who are new to the investment world may not understand what is a mutual fund completely. One of the first things they need to know is what is a mutual fund. Simply put, it is a type of investment that allows you to take out loans against the revenue your investments will produce. A mutual fund usually pools a number of different investments together so that when one takes a loan against the revenues from the investments of the other investors benefit. This is where the term mutual fund is most often used.
The main benefit of a mutual fund compared to investing directly is that by pooling your money and spreading the risk between several different investments you are able to receive a much greater rate of return on your money. Even if the market crashes, you still have your initial invested funds to fall back upon. Another benefit is that through diversification of your portfolio you are less exposed to any one specific investment. When you are directly investing your money, you are usually gambling on which the company will make it big next. However with a mutual fund you are playing the same game, but you are investing your money into several different companies instead.
There are two types of mutual funds available, equity mutual funds and bond mutual funds. These categories are broken down further to include other categories such as real estate and foreign exchange. With each category has several different categories there are hundreds of different mutual funds. With this large number of options it is important to know what you want before you start looking.
Answering the question of what is a mutual fund is not as cut and dry as you might think. The first thing you need to know is what your goals are. Are you looking for maximum safety, minimum return or a combination of both? Once you have an understanding of what your criteria are you can begin to answer the question, what is a mutual fund?
There are several different types of mutual funds including stock funds, bond funds and real estate funds. Investing in real estate could be a good way to build your portfolio as it does not offer a high return on investment. Stock funds offer a low return on investment, but the best part is you only pay out when the company makes money. Bond funds offer high interest rates with the risk of inflation, but the return is guaranteed to be at least a certain percentage over a set period of time.
Mutual funds can be purchased from a variety of brokers. Each type of broker will have a different view of what is a mutual fund so it is important to shop around before you make your final decision. The Internet also makes it easy to research and compare individual funds, which can save you both time and frustration. It is important to understand that most online brokers do not offer free account assessment services and it would be wise to do as much research into that type of broker before you decide what is a mutual fund.
If you are still unsure what is a mutual fund remember, nothing is ever really black and white. You always want to play it safe. While the ideal goal would be to see your investments grow to their full potential you should not get ahead of yourself. When you start your search for what is a mutual fund to keep these things in mind and don’t give up.