What Makes Mutual Funds A Good Investment Option?

Mutual Fund Popularity:

Investment choices have been turning lately with a lot of people. The reason behind this is the volatile stock market and a clear way to diversify your income. The most popular way to do this without the direct involvement of the investors is through a mutual fund. There are several reasons why the mutual funds are doing so well

1. No, direct need to sell and buy stocks

2. Managed by a professional investment manager

3. Spreading money across a wide variety of stocks equals diversification

4. Pooling money with other investors allows for bigger returns.

5. Stays in well defined investments according to their prospectus.

Since, 2000, mutual funds have gone through an explosion with more than 23000 different ones now being offered. So, there is a wide variety of risk tolerance as well as diversification within mutual funds.

The Different Categories

Mutual funds are not all free, and there is some money that is taken when you invest in the shares, and on the return. Usually the management fees charged by certain funds are the expenses to operate such a fund. The money goes to paying the fund manager as well as to manage the funds. Sometimes, these fees can be charged in the process of an up front charge when you join the fund or a back end charge when you decide to leave the fund. Some mutual funds do not charge any fees, and these are commonly known as no load funds. These funds are covered with the 12b-1fees.

The main categories of mutual funds you will see are

1. closed end funds

2. exchange traded funds

3. unit investment funds

Each of these types of funds can carry their own fee structure along with the various investments that it provides. But, those are charged and directed by the funds manger.

Securities & Exchange Commission Rules

The Securities and Exchange Commission has made mutual fund rules extraordinarily extensive. They have to adhere to an extremely rigid structure of guidelines. The first act of investment rules was commissioned by the exchange in 1940 under the investment company act. With these rules and regulations in place, it may seem to be a hassle to run a fund, and in some aspects, it is. But, it allows for greater protection of the money that you decide to invest into mutual funds.

Diversification:

The best thing about investing in mutual funds is the ability to put a small or large sum of money into one of them and you are instantly diversified. You can then take other monies and invest further into more mutual funds or other companies if you so wish to do so. Having the diversification available will allow your money to be safer and in the correct places to prevent it from losing value over time. The returns will be greater, and you will be a much happier camper in the end.

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Hubpage Gal profile image

Hubpage Gal 4 years ago from Phoenix, Arizona

Great article.

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