What is Mutual Fund?

A mutual fund is pooled money provided by individual investors and invested by a professional money manager.

A Mutual fund is pooled money provided by individual investors; the money is invested by a professional money manager. Mutual funds may have a load (commission) in which you are charged a fee to buy into the fund. They may have a back-end load, meaning you are charged a fee when you sell your shares, or they may be a no-load mutual fund, meaning there is no fee to buy into the fund.

All mutual funds do have fees; the mutual fund company is not managing your money out of the goodness of its heart. The fees for managing and running the fund come out of the fund before any profits are shared with you. If your are buying your fund trough a planner or broker, you may end up paying a trailing commission each year to the planner through the 12b-1 fees charged by the mutual fund.

Mutual funds offer instant diversification because they are by their very mature diversified; they own more than one stock or one bond in a fund. They offer you the ability to get into the stock market with very little money, as little as $50 a month. To be really diversified in the stock market when you own individual stocks, you will need to own at least 10 stocks, and you might not have the money available or the time to learn about 10 companies. Mutual funds offer you a money manager who is very diligent in keeping track of the portfolio every day. Mutual funds have individual objectives and investment philosophies. You'll need to get the fund's prospectus to see if it matches up with your needs. Mutual funds are categorized by their style of investing and their overall objectives.

M utual funds can own stocks, bonds, CDs, and even real estate. A money-market mutual fund owns debt investments that mature in under a year and that can include very large CDs. To understand what you are buying you should read the prospectus. I can recommend this until I am blue, but most of you will not pick up a prospectus and read it. It is like reading the phone book in some ways because the legal department of the mutual fund company got hold of it. But it truly does hold valuable information

Check out books on mutual funds at your local library. I love sending people to the library. I am truly a frustrated teacher at heart! Some libraries may even have computers for you to use if you don't have one at home, and many of them have a hard copy of the Morningstar report. Morningstar is a good tool to learn how to use because it will help you evaluate your mutual funds (as well as stocks) and find ones that meet your investment needs. Also check out the financial magazines on the newsstands. Family money, Kiplinger's, Money, and Mutual Fund magazines all have titillating articles about mutual funds stocks, taxes investing, and almost anything else that to do with your money. There is some good information there. Check the magazines' Web sites as well.