Basics: Mutual Funds

Let’s review what a mutual fund is:

“This investment is a shared investment vehicle which is managed by an investment manager.
The investment manager is the one responsible for allowing or preventing you and other investors from investing your money in stocks, bonds or other investment vehicles. They are valued at the end of the trading day. Also, any transactions of buying or selling shares are nullified once the market closes.”

Through mutual funds, you can gain access to professionally managed portfolios of bonds, equities, and other securities. You and the other shareholders will also participate in both losses and gains of the fund no matter how small.

There are different kinds of categories when it comes to mutual funds which represent the kinds of securities that the fund manager invests in. Let’s list down 3 of the most common kinds of mutual funds:

Fixed Income funds
It’s one of the largest categories. With a fixed income mutual fund, you can focus on investments that pay a fixed rate of return. Examples of this will be corporate bonds, government bonds, or other debt instruments. The idea behind this category is for the fund portfolio to generate a considerable amount of interest income which can be passed on to the shareholders.

Equity funds
With this one, you will be investing in stocks. These kinds of funds aim to grow faster than the other kinds meaning that there is usually higher risk of losing money. Equity funds include those specializing in growth stocks, income funds, value stocks, large-cap stocks, mid-cap stocks, small-cap stocks, or a combination of these.

Balanced funds
This is a mix of both fixed income and equity securities. It tries to balance the aim of achieving higher returns against the risk of losing money. These funds mostly use a formula to split money among the different types of investments though they tend to have higher risks than fixed income funds but less risk than equity funds. This actually depends on the approach; an aggressive fund holds more equities and fewer bonds, while a conservative funds will have fewer equities and more bonds.

FSMSmartis here to provide you with the latest news updates about market trends. Never miss out on news regarding forex, commodities, consumer, financial, and technology here in FSMSmart!