Mutual Funds Introduced

Mutual, where investing is concerned, means buying into a generally held fund from a company that invests other people’s money. This company will have expertise in managing the different types of investments and all the shareholders will have to do is put up the money. This may or may not be a good idea; it depends upon the economy, the expertise of the company, and the willingness of each investor to take the chance.

There are three types of mutual funds: money market funds, bond funds and stock funds. What this means is the company that is selling the mutual funds deals in these three types of trading with your money. The individual investor will have no say as to what type of investing the company will do. Money market means the company will use your money to buy whatever they think is a good investment, or they will buy bonds or deal in stocks.

This is called diversification which means your money is scattered over the buying field, a little bit here and a little bit there. And that’s good investing because it means that not all of your assets will be lost if such and such a deal goes bad. Another good selling point for mutual funds is its professional handling.

To explain: You are an entrepreneurial minded investor just starting out in the field — fresh out of college maybe, with a master of business degree with ink still wet on the diploma — to put his first paycheck on one company selling stocks on Wall Street, he would have nothing should the company go under.

How do mutual funds make money for the investors? There are several different ways such as such as dividends, capital gains, increased value of one or more of the investments. The fees are hefty however and once these are subtracted often there’s less money for those buying into the mutual fund company.

You pay a sales fee to the brokers and this is done before the mutual fund company gets its fee. This is called a front- end-load. An online source gives an example of how this works: “For example, let’s say you have $1,000 and want to invest it in a mutual fund with a 5 percent front-end load. The $50 sales load you must pay comes off the top, and the remaining $950 will be invested in the fund. According to FINRA rules, a front-end load cannot be higher than 8.5 percent of your investment.”

The second fee, known as the purchase fee goes to the mutual fund company. For the record, this is supposed to go to those who work at taking care of your money. In addition should you decide to sell your shares there will be “a deferred sales charge: and other possible tacked on fees such as redemption fees, exchange fees, account fees. Of course all this is necessary because each person handling the money, or the deal, must have their share before the individual investor gets any money.

Are there ways of learning about how to assess mutual funds? You can contact the company directly and speak to them or contact the bank, the broker, or the planner or the insurance agents or whoever is selling the mutual funds. And by the way, mutual funds are not backed by the government as are securities.

With all the negatives concerned with this type of investing why should anyone consider it? It’s a good way of investing money without having all the headaches and stress involved with making the financial decisions yourself. You must trust your mutual fund company and in order to do that you will have checked them out before you put your money on the table.

Actually, mutual funds are popular and they are moneymakers over a long haul. With such low interest that savings accounts now receive, money markets are not such a bad gamble after all.