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Understand the working of Mutual Funds

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Site Admin

Joined: 17 Jul 2006
Posts: 115

PostPosted: Wed Jul 19, 2006 5:06 am    Post subject: Understand the working of Mutual Funds Reply with quote

*Understand the working of Mutual Funds*

* *

Half of all the households in America invest in mutual funds. For most
people <a
mutual fund investment </a> is better than keeping money in the bank.
Mutual funds are companies that invest money in stocks, bonds and other
securities. When you buy mutual funds your money is a portion of the
holdings of the fund. Make money in Mutual funds in a sure and safer
rather than following the swings on Wall Street.

Not all mutual funds have delivered and putting your money in a mutual
fund does not necessarily give you good returns. How can you make money
from mutual funds?

* Income from mutual funds is earned from dividends on stocks and
interest on bonds.
* If securities have increased in price and the fund decides to
the securities, then the fund has made a capital gain which it
passes on to its investors.
* The mutual fund holds shares and if these shares have increased
price. You can sell your mutual fund shares for a profit.
* You could reinvest your earning and get more shares as well.
* Mutual funds is a long term investment option

* *

*Is Mutual Fund investment a good option?*

*Get to know mutual fund basics and invest in the best mutual funds and
your investment is a wise one. Why are mutual funds safer than stock
market? Since the money of the fund is diversified the risk of the
company is less. Even though gains in some investments are minimized
to losses in others they still stand to gain in transaction costs as it
is for large amounts of securities. The good about mutual funds is that
you do not have to follow the prices of stock and get worried about
loss. Liquidity is also there since you can convert your shares into
cash at any time. Many banks have their own mutual funds and a small
investment of $100 on a monthly basis can reap good rewards. On going
yearly fees and transaction fees are the costs that eat into your
funds profits. Fees for the sales persons and brokers also eat into
funds. These are called loads. There types of loads are front end loads
and back end loads. So it is best to choose a fund with no loads. *

* *

*Types of mutual funds *

Each fund describes its investment objective. Since it is predetermined
you can choose whether to invest in it or not. Each All mutual funds
variations of three basic classes.

* Equity Funds invest in stocks
* Fixed-income funds invest in bonds
* Money Market funds are diversified

Equity funds require a long term capital growth with some income. The
best returns can be understood by the companies invested in. Large cap
companies are the safest equity investments.

Bond/Income funds give you higher returns but are risky if they are not
invested in government securities. Also another factor is the high
inflation risk which brings down the profit on your investment.

Money market funds are investments mostly in treasury bills. This is a
safe investment option. Your returns may be twice that offered by
though not much your principal is safe.

Other varieties of mutual funds are

* Growth funds are the investment in the equity of fast growing
* Specialty funds are the investment in equity of companies that
of the same sector or region.
* A balanced fund is a combination of fixed income funds and equity
funds. Asset allocation fund has objectives similar to that of a
balanced fund.
* Socially responsible funds do not invest in industries such as
tobacco, alcoholic beverages, weapons or nuclear power.
Maintaining a healthy conscience is a criterion of this fund.
* Index funds replicated the performance of the market index such
Dow Jones or ‘Standard and Poor’s 500’
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Site Admin

Joined: 17 Jul 2006
Posts: 115

PostPosted: Wed Jul 19, 2006 5:25 am    Post subject: Reply with quote

Mutual funds are worthless.

75% of mutual funds don't outperform index funds. Buy index funds instead.

Most mutual funds charge huge fees.
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