Mutual funds get a fair amount of attention on Wall Street and many investors love them. Before you jump in, it's important to first read up* and understand the basics.
What's a mutual fund by the way?
A mutual fund essentially is a pool of money managed by a team of professionals. The Fund Manager invests the money in stocks, bonds, short-term money-market instruments, other securities or assets, or some combination of these investments, while maintaining the objectives and risk tolerance.
What to like:
* Diversification – Fund managers spread the pooled money across many investments. This reduces the risk of losing all your money if one investment goes sour. Keep in mind that diversification does not assure a profit, or protect against loss, in a down market.
* Professional management – A real financial pro (or a team) decides when to buy and when to sell the securities held by the fund.
* Divisibility – Mutual funds allow investors to contribute round dollar amounts. This makes it easy to invest a little each month.
What to keep in mind:
* Investment minimums – No matter which mutual fund you select, all funds have an initial investment minimum. You might have to save up some cash to get started.
* Charges and expenses – Some funds charge a "load" or a "sales charge" when you buy or sell. Some charge an "early redemption fee" if you sell too soon. Be sure you understand all the costs before investing.
* Liquidity – Mutual funds only trade when their value is calculated, which is at the end of the day. This can limit how quickly you can act on market news.
No single investment is for everyone and only you can decide whether mutual funds are right for you.
via IngDirect
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