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Investments Mutual Funds

Bond mutual funds are aimed at the protection of the principal that is invested by investing in conservative or relatively low-risk investments that pay out an income regularly, rather than risk it on instruments that look out for superior returns.

Mutual Funds

Mutual funds have become extremely popular over the past decade. More and more investors are turning to mutual funds as an investment for financial security after retirement. In the U.S alone, trillions of dollars have been invested in mutual funds. As a matter of fact, a lot of people consider mutual funds to be the safest and best way of investing. In fact, it is actually as fact that investing in mutual funds is better than letting cash lay idle in a savings account.

What are Mutual Funds?

Mutual funds are professionally managed funds that are collected from several investors and invested in bonds, stocks, short-term market instruments or other assets and securities. The combined holding a mutual fund owns is known as portfolio and each share represents an investor's proportionate ownership in the fund's holdings as well as the income generated from those holdings. These funds are easy to buy and can be purchased directly from a fund company or through third party agents.

Types of Funds:

There are many types of mutual funds that include bond funds, stock funds, index funds and money market funds. Each of these may have different investment objectives, strategies and investment portfolios. Different funds may also be subject to different risks, volatility as well as fees. The fees reduce returns on investments and are an important factor that should be considered while buying shares in mutual funds.

How You Earn:

Investors can earn money from investments in three ways:

Dividend Payments: Funds may earn you income in the form of dividends as well as interest on securities in its portfolio. The fund pays the shareholders almost all the income it has earned in the form of dividends, after subtracting disclosed expenses.

Capital Gains Distributions: Price of the securities a fund owns could increase. Whenever a fund sells a security that has increased in price, it has a capital gain. Most funds distribute these capital gains to its investors at the end of the year, after subtracting any capital losses.

Increased NAV: In case there is an increase in the market value of a portfolio after deducting the expenses and liabilities, the NAV (net asset value) of the fund as well as its shares increases. Higher NAV reflects a higher value of investment.

Regarding dividends paid and capital gain distributions, the funds usually give you a choice. Your fund can either send you a check or any other form of payment, or perhaps you can reinvest your dividends or distributions in the fund.

Mutual Fund Advantages:

Professional Management: A key advantage of these funds is professional management of money. Usually, people don’t have the time or expertise to manage their money. Mutual funds are a relatively inexpensive way to have a full-time manager make and monitor your investments. Professional finance managers research, select, as well as monitor the performance of the securities a fund purchases.

Diversification: Owning shares in mutual funds instead of individual bonds or stocks reduce the risk of loss. Mutual funds invest in a number of assets so that any loss in a particular investment is lessened by gains in others.

Like any other investment, investing in mutual funds does involve a certain amount of risk. To understand the upsides and downsides of investing in mutual funds, and choosing a product that best suits your financial goals, fix up an appointment with an investment advisor.

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