When discussing investing in mutual funds, the words investor and manager are often interchanged. An investor is a person who purchase shares of a mutual fund and manages the fund on his or her behalf. The manager is the person who actually manages the funds, planning what investments to make and when to sell them for a profit. Mutual funds can be managed by an individual or an institution. Mutual funds usually follow the same investment methodology as individual or corporate stocks; however, with the added advantage of tax advantages and lower fees.
A mutual fund is basically an open-ended professionally managed investment fund that pools money from several investors to buy various securities. These types of investment funds are popular with affluent individuals who wish to diversify their portfolio and increase their overall wealth. A mutual fund investor may be institutional or retail in nature, with similar investment objectives. Mutual funds can be both very diversified and fairly simple to invest in, depending on the specific needs of the investor.
Most people are familiar with mutual funds as investments in stock and bond markets. In most cases, the term equity investor refers to those who buy bonds, stocks, or other securities that represent an ownership interest in a company. A common type of mutual fund includes common stocks, preferred stocks, debt securities, and other such categories. Funds are used not only to increase wealth, but also as a strategic investment tool, allowing the investor to minimize risk and increase return.
Mutual funds pool money, or investments, from multiple investors, is usually done to buy and sell bonds, stocks, and other securities that represent a given industry. Most funds are traded on major exchanges such as the New York Stock Exchange and the NASDAQ, with the major exception of the U.S. equity market. There are many types of mutual funds available on the market today, but the most familiar are those that invest solely in stocks, with bonds and other securities included for the convenience of investing in multiple types of securities. A few popular mutual funds are ones that invest primarily in stocks and bonds, while others like the “basket” approach invest money in a mix of stocks and bonds and a little bit of both. As always, it is important to do some research on any mutual funds you are considering before investing.
There are several ways that mutual funds make money for the investor. One is capital gains. These profits are realized when the securities within the fund perform well during times of good market flux. The selling of securities in a fund will result in profits when the securities are bought back at a good price. The sales of securities from a fund are called net profits. This is one of the primary reasons that investing in mutual funds makes sense.
The final way that a mutual fund’s profit is realized is through dividends. When an investor invests in stocks, he or she takes home a portion of each dollar of stock as a dividend. When investing in bonds, the dividend is earned only when the company issues stock. Investing in securities like stocks and bonds is generally much more secure than investing in securities like bonds, since most companies offer some type of guarantee that they will make their promised dividends.