Mutual Funds

 

Basics

Mutual funds are a way for many investors to pool their money and invest in a variety of stocks.  Mutual funds are operated by an investment company that raises funds from shareholders (thousands, even millions of people) to invest in stocks and bonds or other investments.  Funds are divided up into shares.  The price of each share is called NAV, Net Asset Value, also called Book Value (for calculation see below).

There are thousands of funds (actually more than 8,500) to choose from.  Each fund offers something different.  For example, some funds invest only in one sector; such as technology or retailing; some by market capitalization Market Capitalization; some international, others try to select the best stocks across all markets.  Index Funds Index Funds invest in a broad index.  Your choices are almost endless.

Before you invest in a mutual fund you need to do your research.  Read the fund's prospectus, which outline the investment objectives of the fund.  See if they meet your objectives.  Also look at financial websites, a few are listed below, that compare one mutual funds performance over another.  Always look at a fund's performance over time, not just one year.  When looking for a fund you need to decide what type of investor you are: long term, income oriented, or aggressive.  Also all mutual funds have costs associated with them, some more than others.  Make sure you understand all these costs because they will affect your bottom line.

All mutual funds are regulated by the Security and Exchange Commission (SEC) Stock Market & Security Exchanges.  The Investment Company Institute (ICI) is the national association most fund companies belong to
http://www.ici.org , which has additional information on mutual funds.