Mutual funds have gained great popularity in recent years. In fact, investments in mutual funds have become a part of our daily lives. Half of American families (more that 80 million people) prefer investing in mutual funds rather than keeping money in banks. Trillions of dollars are invested in mutual funds in the United States alone.
Mutual funds are organizations that invest money they get from small investors in stocks, bonds or other securities. When investing in a mutual fund one gets shares that could be sold and bought back on continuous basis. Funds are safe and secure way of making money.
The funds are classified according to their investment objectives. Thus, each investor is free to choose the type of fund that suits his/her needs the most.
All mutual funds are divided into three main classes:
- Fixed-income Funds that make investments in bonds
- Equity Funds that invest money in stock
- Money Market Funds
Mutual fund investors earn money from dividends on stock and interest on bond.
By selling increased in price securities, the fund makes capital gain, which is then passed on to all investors.
Each investor has the right to sell shares for a profit when they increase in price. To get more shares an investor can reinvest his/her earnings.
Mutual fund investment can be a good option if you know mutual fund basics and choose the best fund for your investments. Mutual funds are safer than stock market. The money of the fund is diversified thus the risk to lose it is less. Probably, the best advantage of investing in mutual funds is that there is no need to track stock’s prices and worry about losses. Shares can be converted in cash any time an investor needs money.