Mercy Maranga writes content on Finance and Finance Management. Visit her site here for more information on Mutual Funds and how to effectively invest your money. Mutual Funds
The term mutual fund is highly misunderstood by many people. It is basically a professional management of a collective investment plan from different investors who invest in stocks, bonds or other assets. When you combine these holdings of the stocks, bonds and other assets then this is termed as a portfolio. Each investor then has a share which forms a portion of the holdings.
There are also various sub categories as well where stock funds can be invested specifically in a certain industry such as technology or utilities. This type of stock fund is known as sector funds. There is a professional who is in charge of supervising and monitoring the mutual funds portfolios. They also forecast the future performance of the investors and handle the cash flow of the fund.
There are ways for you to earn money through this type of investing. This could be from dividends on stock or interest on bonds. There is a fund manager who trades the pooled funds on a regular basis. Any profit that is earned from this trading is then distributed among the investors. There are also other types of funds like the open-ended fund which can be traded at any time in the market. Then there is the close- ended fund which has a lock in period during which it cannot be traded in the market. It is important that you understand how each of them works so that you can choose the one that you think will work best for you.
The open ended mutual fund is designed for the investor who wants to take higher risks and get higher returns. These funds are normally equity oriented whereby about eighty percent of the investment is in equity shares while the remaining twenty is in secured instruments. The closed ended one suits low risk investors and in this case most of the investment is in secured instruments while very little is invested in stocks and shares.
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