The majority of investment activities is carried out by institutional investors, including mutual funds.
They buy and sell large quantities of shares and get preferential treatment on trade commissions. Although everyone can try investing for him or herself, investment is a profession and requires professional knowledge and expertise, as well as resources.
With a certain degree of share concentration, some mutual funds may even seek board seats of their portfolio companies and try to exert a more active role in corporate governance. As a result, funds can have more control over their investments and that often leads to better investment performance.
Mutual funds are investment companies that are highly regulated by the Securities and Exchange Commission for the protection of the investing public. Like corporations, mutual funds have boards of directors to oversee fund management and the boards appoint registered investment advisers for its portfolio management. Professional money managers have the expertise and resources to perform in-depth analysis for any investment made.
There are many research organizations such as Morningstar that track and compare mutual fund performance, which creates competition and encourages fund managers to deliver better returns for investors.
Most mutual funds are actively managed and invest in a diverse range of securities, which individual investors without enough capital can hardly match.
There are well over a thousand mutual funds to choose from and they represent a full range of industries and companies, from value or growth stocks, small cap or large cap companies, to domestic or emerging markets, to bonds and various cash equivalents.
Investors should study a fund’s prospectus and learn about its investment objectives and investing methods in order to make informed selections.
Buying mutual fund shares has almost the same level of liquidity as trading stocks.
By law, mutual funds must redeem their fund shares upon investor request. Trading mutual funds can be easily done through either placing orders with a broker or directly contacting fund companies.
Mutual fund share value, known as net asset value NAV, is calculated and announced once at the end of the trading day based on share prices of a portfolio’s underlying securities. Normally prior day NAV is applicable for share redemption application received before a cut off time.
Mutual Fund Popularity
As of July 2010, the U.S. combined mutual fund assets under management is over $10 trillion.
Not only have mutual funds been popular among individual investors, but also for the nations massive 401(k) plans that have continued to have their retirement money invested in mutual funds. For 401(k) administrators, when it comes to provide investment choices for a plan’s employees, it seems that mutual funds are the automatic option.
The mutual fund industry has also lobbied hard to secure this valuable funding source.
Though mutual funds have many clear advantages as an investment vehicle, they aren’t all created equal.
Make sure the mutual funds you invest in meet your investment goals and aren’t full of fees, such as loads, that will sap your return. Watch who has managed the fund and how long they have run the fund and what they have invested themselves in the fund. Take a close look at the prospectus to see the underlying investments.
You may find that a fund’s investments don’t match as well as you would like to their description or name.
In all, mutual funds are a great way for a person to invest in a broad variety of investments without having to buy each individual security. Chosen carefully, mutual funds can help create and grow wealth for years to come.