A mutual fund is a type of investment tool that involves funds gathered from various investors. These funds are designed for investing purposes on a range of securities including money market, bonds, and stocks. Money managers are the ones who operate mutual funds, and the capital of the funds are invested to obtain capital gains for investors. There is also a structured portfolio in mutual funds, which helps maintain the investment objectives.
Benefits of Mutual Funds
If you are thinking about investing on mutual funds, you may want to learn about the benefits you can expect from it, as well as some points to consider.
Small investors or beginners will find it convenient to invest on mutual funds because their investments are managed by professionals. These funds feature diverse portfolios of bonds, equities and other types of securities. The carefully managed portfolio helps generate some capital over time. Hence, new investors can rely on the expertise of those managing their funds and expect some gains on their investments along the way.
Asset allocation or diversification is important in investing. This is a technique that is beneficial to small or large investors since the proper mix of investments aids in managing risks. There are those who purchase stocks from both the industrial and retail sector, so they can minimize the effects of the performance of these securities on their portfolio. Although it may be costly for individual investors to purchase stocks with varied capitalizations from several industries, this is usually a smart way to go when diversifying your portfolio for maximum gains.
3. Consider Getting Volume Discounts
In investing terminology, this is referred to as economies of scale. To put it simply, it involves getting discounts by buying stocks in volume. Thus, the more volume of the product purchased, the cheaper it gets. You can also save more money if you buy securities in large volumes since once transaction fees accumulate, you are not making the most out of your investment because of an impractical strategy. Keep in mind that mutual funds allow you to minimize transaction costs since mutual funds involve taking advantage of the selling and buying size. With stocks, you need to factor in commission charges and transaction fees whenever you modify your portfolio. All of these costs add up and reduce your savings. On the other hand, you can complete transactions with mutual funds for less amount of money.
Perhaps, you want to start investing, yet you do not have enough money at the moment. If this is your concern, then you can begin through mutual funds. Remember that a couple hundred dollars will not suffice for a good amount of stocks, and there are commissions to think about, which are deducted to your funds. As for mutual funds, these are available in small denominations such as $100 to at least $1000. Hence, small investors can start even with a little amount of money and just continue investing periodically as they go for monthly purchase plans. Eventually, you can branch out on other investment vehicles once you have more money gained from investing on mutual funds.
If you need to get out of your investments due to emergency need for funds, you will be able to do so without any hassles. You can sell quickly your mutual funds, and there is no big difference between the current market value and sale price. Just think about some fees involved with selling your mutual funds such as back-end load fees. Transaction is also done once a day right after the calculation of the NAV or Net Asset Value of the funds.
Things to Consider
All types of investment come with risks. With mutual funds, there are also market fluctuations to think about, and the returns may even go less than the total market value. The gains you receive from mutual funds are also not free of charge, and you may be subject to penalties and fees when you withdraw your funds prematurely.
However, with the help of an expert, and by weighing the benefits and drawbacks of investing in mutual funds, you can make the right decision that will yield profitable returns in the long run. Be sure to choose a professional and experienced money manager who can use the money invested to buy and sell some stocks after much research has been made.