A mutual fund is a collection of stocks and bonds that are combined into a group, which are bought and sold. By pooling these investments, you risk managing the losses that some stocks or bonds may have with the gains of others. This basically protects you from having all your eggs in one basket, which is a high-risk strategy.
Mutual fund managers have the responsibility of managing a mutual fund. When you invest in these funds, you are buying a portion of the stocks or bonds in which an investment has been made. Due to the size of these funds, your investment will only form a small percentage of the total investment size. The decision about which stocks or bonds the mutual fund buys and sells is determined by the manager. These managers charge a commission and sales expenses that you will have to pay. The structure of these mutual funds is often divided into four categories. When you pay a fee up front, this is called a down payment.
A back-end is where you pay when the stocks or bonds are sold. When there is a fee payment on a regular cycle, such as the annual fee, it is usually based on a fixed percentage of the fund’s net assets. The last type of fee is the best of all, it is the payment of no fee and is commonly referred to as no charge. This is obviously a good option to compare and select if the fund also has a good track record of delivering good returns. There is a selection of types of funds in which to invest. There are standard stock funds that are issued by companies. Bond funds are just that, the purchase of issued bonds. Sector funds are directed at specific parts of the economy, such as financial, industrial, mining, and the like. International and global funds are, as the name implies, investments made outside of the United States. Balanced funds allow selection of stocks and bonds, which is a more risk-averse approach. Index funds are aligned with stocks from a particular type of stock indices.
You’ve probably heard of these reports quite often like the Dow Jones Industrial Average, or another common one is the Standards and Poor’s 500. These are a collection of stocks that make up these stock market indices. Your investment in index funds is only in the stocks that are included in these index funds.