Before Investing, Know About Mutual Funds And How They Benefit Investors

Mutual funds are financial instruments in which assets from different shareholders are invested in securities such as stocks, bonds, money market tools and other assets. These mutual funds are managed by team of professionals who allocated monetary funds to produce income for fund investors. 

Mutual funds are financial instruments that provide small investors to access professionally managed portfolios in the form of equities, bonds and securities. Each shareholder participates according to his investments in the gains or losses of funds. Most mutual funds are part of larger investment companies such as Fidelity Investments, Vanguard, Merrill Edge, JP Morgan wealth management etc.

A mutual fund company has a fund manager who is also known as investment advisor, and this manager is legally responsible to work in the best interests of mutual fund shareholders.

Key Points About Mutual Funds

A mutual fund is type of investment vehicle consists of portfolio of stocks, bonds or other securities.
Mutual funds are of different type representing the types of securities they invest in, their investment objectives and type of returns they seek. Mutual funds charge annual fees, expense ratios, or commission which affect overall returns.

The valuation of a mutual fund depends on the performance of securities in which investments are made. When investor buys a share of a mutual fund then more precisely he is buying part of portfolio value. An investment is stocks are totally different from investments in mutual funds. Differing from stocks, mutual fund shares do not give any voting right to their holders. A simple share in mutual fund means investments in different stocks or securities.

The price of mutual fund share is known as Net Asset Value (NAV) per share. A funds NAV is calculated by dividing the total value of securities in the portfolio by the total amount of share outstanding. Outstanding shares are those which are held by shareholders. Mutual funds can be purchased or redeemed at the fund’s current NAV, which do not fluctuate during market hours but is settled at the end of each trading day.

The price of mutual fund is also updated when the Net Value asset per share is settled. Each mutual fund holds different securities meaning the shareholders gain diversification. Suppose an investor buys Google Stock and relies on the success of the Company’s earnings. The dollars are tied to one company thus gains and losses are dependent on company’s success. Therefore a mutual fund may hold Google in its portfolio and gains and losses of just one stock are offset by gains and losses of other companies in the fund.

How returns are calculated for Mutual funds.
Suppose investors buys Apple Stock, then they are buying partial ownership or a share of the company likewise a mutual funds investor is buying partial ownership of the mutual fund and its assets.

Income is earned from dividends on stocks and interest on bonds held in fund’s portfolio. Mutual funds give investors a choice either to receive a check for distributions or to invest the earnings to purchase additional shares in the distribution. When fund’s shares increase in price you can sell your mutual fund shares for a profit in the market.

Types of Mutual Funds

There are different types of mutual funds which are available for investments but generally there are four major categories that comprises, stocks funds, market funds bond funds and target date funds.

Stock Funds

This fund invests in equity or stocks. Some equity funds are named by the size of the company like small mid or large cap. These funds can be classified on the size of the company, their market cap, and the growth prospects of the invested stocks.  Large cap companies have high market capitalization. Small cap companies refer to stocks with market cap ranging from $250 million to $2 billion. These small companies are risky investments. Mid size cap stocks fill in the gap between small and large cap.

Bond Funds

A mutual fund that generates minimum return is part of fixed income category. A fixed income mutual fund focuses on set rate of return such as government bonds, corporate bonds and other debt instruments. The interest income generated by fund portfolio is transferred to shareholders. These mutual funds are without risks. For example, a fund specializing in high yield is much riskier than funds which invest in government securities.

Index Funds

Index funds invests in stocks that are corresponding to major market index such as S&P 500 or the Dow Jones Industrial Average. This approach needs less research from advisors so that there are less expenses which are passed on the shareholders and these funds are calculated with cost sensitive investments in mind.

 Money Market Funds

Money market funds are safe, risk free, short term debt instruments mostly government treasury bills.

In money Market funds the investor may not get substantial returns but their principal is always guaranteed. The return earned is more than amount earned in a regular checking or savings account.

Online Mutual Fund investment Platforms in USA.
Mutual funds can be bought and sold on the online platforms. These online mutual funds can are regulated same as offline funds. The best brokers who sells these MF in USA are-

Fidelity investments

Interactive Brokers IBKR Lite

E*TRADE  by Morgan Stanley

Merrill Edge by Bank of America

TD Ameritrade

JP Morgan Wealth Management


AXOS invest self directed Trading

Benefits of Mutual funds

Mutual funds are generally have wrong conception as a complex investment instrument. But in reality they are very simple and their investment philosophy offers investors many benefits such as diversification, professionally managed money, economies of scale transparency and liquidity.
Below are some of the reasons why investment in mutual funds should be encouraged-

Diverse Portfolio. This is most important benefit of mutual fund where funds are diversified.

Good Returns.

Professional Management.

Low Investment Cost.

Flexible Payments for Investment.

Tax Benefits.


Attracts Large Scale Investors.

Conclusion- Mutual funds are financial vehicles that have securities and bonds of companies who attract investors to invest in their securities. The investors gain on the performance of these shares in the market.

Before Investing, Know About Mutual Funds And How They Benefit Investors