Mutual Funds: The Power of Collective Stock Ownership

Mutual funds: the power of collective stock ownership 1

Mutual fund is collection of stocks or bonds. It is a characterized by a financial relationship which exists between a company or fund manager who will handle all the trading for their clients and investors who provides their stocks, bonds and other securities and who are willing to trust their money’s worth to the company. Mutual funds are characterized depending on the type of investments they allow their fund manager to do transactions with. These include equity mutual funds, bond mutual funds, REIT mutual funds, balanced funds, and target date funds.

There are several reasons why people are attracted to mutual funds. The primary advantage it provides to its investors is the power to achieve broad diversification. Another benefit will be the reduced cost compared to direct investments. You still need to pay management fees but since it is a collection of bonds or stocks, these fees are widespread to all the investors. Lastly it also offers simplicity. You need not put much effort in learning the in and outs of this process. You simply buy particular number of shares of a company and you can simply sit back and relax. The professional money manager will do all the hard work for you.

This is especially true for money market mutual funds. It acts just like a normal savings account and allows its client to redeem their funds any time of the day. Nevertheless, these type of investments puts very little control on the part of the investor. It is the mutual fund manager who handles the major decisions and trading. Your yield also depends on the number of shares you bought or the amount of investment you put into it. You take the gamble of allowing your money to rest on the trading market does not protecting it from market losses. So before deciding to invest on anything, try to do thorough research on the pros and cons of different investments. It may indeed offer cheaper expenses on your part but the hazard may be higher.