MUTUAL FUND

What is Mutual Fund?

Mutual Fund is a collective fund of many investors combined together for the purpose of investing it.The funds are then managed by a group of managers to make it earn. These group of managers are  referred to as "investment companies" or "registered investment companies."  These companies have professional fund managers that invest the funds in various financial instruments such as money market securities, bonds and equities, which are normally available to bigger investors only.

Investments in mutual funds are represented in number of units. When you invest, you are buying shares of funds per unit. This is what we call NAVPU or Net Asset Value Per Unit. Investors can buy or sell shares of funds at any time.

Generally, mutual funds has three categories

1. Fixed Income Fund - funds are invested in government and corporate securities that provide a fixed return and are usually low risk.

2. Balanced Fund - funds are invested into stock market and bonds. It has moderate risk and moderate return  

          

3. Equity Fund - funds are invested in stock market. It has high risk and high return.

In mutual fund, someone else manages your fund and so, you don't have to worry about diversifying individual investments yourself or doing your own record keeping or finding where could you earn more. All you have to do is to just buy them and forget about them. 

Managing funds is a full-time job of these investment managers. You can be assured of their competence and diligent performance. They are the one who make research and studies the market condition. Their compensation also depends on how well the fund performs.

Mutual funds are divided into Open -Ended and Close-Ended

Close-Ended Funds has a specific number of shares issued to a particular fund. These shares are issued to the public through an initial public offering. These shares trade on the open market. It does not redeem or issue new shares like a normal mutual fund. This is why the fund is  subject to the laws of supply and demand. As a result, shares of closed-end funds normally trade at a discount to net asset value.

Open-Ended Funds means that the fund does not have a specified number of shares. Instead, the fund will issue new shares to an investor based upon the current net asset value and redeem the shares when the investor decides to sell. Open-end funds always reflect the net asset value of the fund's underlying investments because shares are created and destroyed as necessary.

Load  is a mutual fund term which means a sales commission.

Load are added to a mutual fund when you purchase or sell it. It goes to the fund salesperson as a commission and payment for their research services.

Many mutual funds are no-load funds.The fund is direct-marketed so you can buy it without the help of a salesperson. With the wealth of information on the internet today, it is certainly easier to make smart choices yourself to save money.

Related Links:

BDO Easy Investment Plan or EIP

BDO Mutual Fund investment

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