This Is The Mutual Fund Definition
Mutual funds are a type of investment that brings together many investors into a common pool. The money collected in the pool is invested in other types of assets and securities like stocks, bonds and other money market instruments. The pool is professional managed by a fund manager who is in charge of looking out for the best type of securities in which to invest the investors money.
The returns on the investments are divided among the investors according to the percentage of the value of the fund that they own. The returns could either be positive or negative, meaning that the pool could either realize profits or losses depending on a number of factors. The most predominant factor is normally the prevailing market conditions. The returns are realized when the pool sells shares to the general public.
Mutual funds fall into different categories and they all attract different rates of returns according to the risk factor carried by each one of them. It is normally upon an investor to decide which one to go for after carefully scrutinizing all the factors at play. An investor is also normally free to sell of his shares at ant time he may feel like, but this will mean that he should be ready to sell them at the prevailing stock prices, which may at times be less than the value he bought them for.
Mutual funds bring with them certain advantages and disadvantages, all of which play their roles to make these investments unique in their own way. For example, the risk involved is relatively lower than that of other types of investments and so are the returns. However, when one gets to the specific categories, this may change and you will find that there are those with high risk factors and high returns as well, or low risk and high returns.