What exactly is a Mutual Fund?

Question

I hear mutual funds are great investments...What exactly are they? What mutual funds would be most recommended?

Answer 1

A mutual fund is a professionally managed firm of collective investments that collects money from many investors and puts it in stocks, bonds, short-term money market instruments, and/or other securities.[1] The fund manager, also known as portfolio manager, invests and trades the fund's underlying securities, realizing capital gains or losses and passing any proceeds to the individual investors. Currently, the worldwide value of all mutual funds totals more than $26 trillion.

Answer 2

A mutual fund is like a hedge fund for the public...

it is a collection of securities which is managed by a company, and they make a return which is passed on to you.

there are many types of mutual funds, however i recommend one in renewable resources with a low risk rate.

if you have any more questions, just email me! i work at goldman sachs as an associate.

regards

Answer 3

A mutual fund is simply an investment vehicle that pools your investment money together with money from a number of other investors.  In turn, the fund invests in any of a number of assets such as stocks, bonds, and other assets.  The general concept is a great one, and has helped many small investors become wealthy... but the devil is in the details.

Whether it's a great investment or not depends on the specific mutual fund.   There is a large difference between, say, an S&P 500 index fund and a fund that invests in less liquid and more volatile securities.  In addition to the differences in what the fund invests in, there are big differences in the fees that they charge for the service.

A beginning investor needs something well-diversified and not too volatile.  And all investors should pay the smallest fees that they can.

So excellent choices for a beginning investor are broad-based index fund such as an S&P 500 index fund or a 'total market' index fund.  These also have the lowest fees.

Vanguard has long had a history of the best index funds with the lowest fees (Vanguard was largely responsible for the whole index fund idea taking off in the first place.)   Fidelity has now lowered their fees to compete with Vanguard, so they are also an excellent choice.

Here are two funds to consider:

Vanguard Total Stock Market Index Fund

http://finance.yahoo.com/q/pr?s=VTSMX

Vanguard 500 Index Fund

http://finance.yahoo.com/q/pr?s=VFINX

If you are a beginning investor, steer clear of any specialized funds such as those investing only in gold, or only in one sector of the market, or only in one country (or 'emerging markets').  Also stay away from the latest 'hot fund of the last 3 months'. If all your money goes into one of those, your investments are not diversified and you have increased your chances of losing, rather than making, money.

Answer 4

Mutual funds are collections of investments.

These investments consist of stocks, bonds, and commodities usually.

The difference between buying a stock, bond, or commodity is that a Mutual Fund has a management team that trades stocks for you.

Now it is important to note that an investment in a Mutual Fund doesn't mean YOU are invested in a percentage of a S,B, or C. It means that you've invested in an investment firm.

Mutual Funds are strong because they have managers and it's a great way to diversify without having to research 100 differnt investments.

How great a mutual fund is depends on the following:

1. Performance

2. Category (Mutual Funds tend to invest in certain sectors...Tech, Manf., Services, ect. They can also be in geographic categories ((Asia Growth markets, Indian Telecommunications, ect.)

3. Management team history

4. Fees

5. Min/Max investments, policies and procedures, ect.

Some of the disadvantages of Mutual Funds is that you can't hedge them yourself. Supposedly, the MF does this for you.

Also the fees are usually higher than a broker buying stocks for you.

I recommend China Emerging Markets, India is also very good. These are good long term choices.