Posted on 29 September 2012. Tags: what are mutual funds
If someone asked you what are mutual funds and you could not give an answer, then you are missing out on one of the best ways to invest for the long term. These collective investment schemes are great ways to earn solid returns without taking too many risks. They help investors profit from the general advance of the whole stock market while sidestepping the risks. People pool their money in these funds and let fund managers direct the amassed capital into different stocks.
Of what are mutual funds made? The answer depends on the fund manager. Some mutual funds focus their investments on certain sectors of the economy. One fund might be mostly invested in oil. Another might concentrate its holdings in diverse stocks of a similar size, such as mid cap mutual funds.
Mutual funds are more than just shared investments among stock investors. They have additional advantages. For example, under certain conditions, the income that you derive from mutual funds will not be taxed.
Professional management is another benefit of mutual funds. Once you have decided that the manager of your fund is worthy of your trust, you do not have to invest personal time in researching stock choices. The manager is taking care of that for you.
What are mutual funds doing for most people? They are providing liquidity. Unlike some other investment opportunities, you can get in and out of them easily. As long as your fund does not have any significant back-end fees, you can usually sell your shares without seeing much difference between the market value and your own sale price. This is what mutual funds are doing every day for many investors after the net asset value of each fund is determined.
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