What are Mutual Funds?

Mutual funds are pools of money collected from many investors around the world; these funds are invested by a hired professional in many different investments and asset classes. The goal of the mutual fund is often stated in the name, such as aggressive growth funds, bond funds, emerging market funds, etc. Mutual funds offer many benefits that investors cannot get on their own or without large amounts of capital.

Mutual Funds Offer Diversification

The best feature to mutual funds is the amount of diversification offered for a small minimum investment. Most mutual funds have minimum investments as low as $1000 and provide the individual investor the ability to be invested in hundreds of different investments from stocks to bonds and other fixed income investments. For the investor on a budget, mutual funds allow the safety of a heavily diversified portfolio without the large commissions that would be required to do the same with an individual's portfolio.

Quality Management

When investing in a mutual fund, you receive quality money management for a fee generally less than one percent of your balance per year. For many investors, mutual funds are worth the expense because they provide returns that ordinary investors would not be able to achieve without dedicating hours of research time into the stock market. Letting someone do the work for you will help free up your time to make more money for yourself to invest.

By pooling the money of many different investors, mutual fund managers have more investment options than the average investor. Many more opportunities open up for investors with large amounts of money to invest, thus by pooling the money of thousands of investors, mutual fund managers can use their new options to generate substantial returns.

Mutual Funds are Easy to Buy

Buying into a mutual fund is as easy as seeing your stock broker or logging into a discount brokerage. Direct investment options are also available, but it is generally easier to use a broker to buy and sell out of mutual fund than it is to deal direct. Be sure to read through the many mutual fund options offered by your stock broker, as some may come with additional fees, such as a sales load fee which usually runs about 5.25% of your total invested amount. Low fee and no sales low mutual funds are easy to find and do just as well as mutual funds with higher fees. This is one business where paying more means that you may actually be getting less.

Mutual Funds Pay the Managers Very Well

Unlike your stock broker, mutual fund managers must produce quality returns to attract customers and keep them. The fees on mutual funds go towards commissions and expenses of running the fund, while paying their managers a handsome sum for controlling to assets of so many investors. The manager of the fund is just as interested as you are in making money; the more money you make, the more money they are able to make. Though every fund has an off-year, mutual funds are working hard to do well for you and for themselves.