Mutual fund investing could be something hard to understand for some people. But if you would just take time to understand the basics, there would surely be no problem in mastering mutual fund investing itself. This basic guide could help you understand the concept of mutual funds as well as the other things related with it.
Generally, mutual fund investments can be broken down into four categories. The four categories include bond funds, stock funds, money market funds, and balanced funds.
Types of Mutual Funds
- Bond Funds. Bond funds are considered safe in mutual fund investing. If you want to try this out, you will be investing on long-term debt instruments usually referred to as bonds. The bonds can be short term, intermediate, or long term. Bonds can be issued by corporations, government entities, or the U.S. government itself. Investors who want to have more income through dividends normally opt to invest under bonds. However, investors should also be cautious in trying this aspect of mutual fund investing as the share prices of bonds fluctuate.
- Stock Funds. This is dubbed as the most popular type of fund, but the riskiest of them all. The fluctuation of its shares price can be too extreme. As you know, stock market is such a risky venture. In a nutshell, the objective of having stock funds is getting high returns with modest income from dividends. Stocks funds cane be further categorized into specialty funds, value funds, international funds, and value funds.
- Money Market Funds. This type of fund under mutual fund investing is considered the safest of them all. Investors get their pays in the form of dividends. The greatest thing about money market funds is that the value of their shares does not fluctuate making it a very wise investment. The money you invest in money market funds are invested into high-quality yet safe and short term IOU’s of the government or major corporations. Whenever interest rates go up, the dividends of investors increase as well. This type of mutual fund offer high liquidity to investors. Under this scheme, you can make money safely and quickly.
- Balanced Funds. This refers to the combination of the first three. This concept of mutual fund investing involves having a mutual fund investment that puts money in stocks and bonds—normally with 6 to 4 ration. Therefore, if you chose to invest in balanced funds, you are technically investing into bonds and stocks. Balanced funds
Mutual Fund Investing Tips
Apparently, funds from different fund houses perform differently due to a number of reasons like the priority levels and style of operation. Thus, before trying out mutual fund investing, it is always important to pick a fund house that has a good track record in the business. Doing some market research would not make any harm on your harm, and it could be your first way of protecting your would-be investment. If you want, you can always hire a professional to guide you with mutual fund investing. This, however, requires additional resources to be shelled out on your part.
For mutual fund investing newbies, it is crucial to have a clear idea first on how everything goes before investing. If you think each concept is too complex for you, you may want to seek the help of a Chartered accountant or financial adviser. Of course, you need to know the basics first.
Mutual funds are governed by a third party, which essentially allows group investors to invest money together. There is an assigned fund manager who is tasked to invest the collected amount from investors into ventures such as bonds and stocks. Investors buy a part of the whole fund when they venture into mutual fund investing. That is basically the reason why that is called as such. Mutual fund investing is very popular because it offers diversification.