Mutual Funds - A Secure Investment

Mutual funds are a collection of stocks and/or bonds invested in different securities, which include fixed market securities and money market instrumentals. It facilitates investors to put their money under an efficient investment management. There are three types of mutual funds namely, income funds, growth funds, and balanced funds.

The basic principle underlying mutual funds is to pool in money with other people to convert it into funds. Mutual funds generally buy shares in stocks wherein an experienced fund manager performs the task of selecting, purchasing and selling off the stocks himself. Certificates are then issued to the shareholders as a testimony of proof of their partnership and participation in the emoluments of funds.

There are particularly three ways in which you can make money from a mutual fund. They are:

1. Benefits can be earned from the commission on stocks, and interests on bonds. All the income received all round the year is paid by the funds in the form of a distribution.
2. The fund will have an outstanding benefit provided the funds sell high priced securities. Most of the profits are given back to the investors in a distribution.
3. The value of the fund’s share automatically increases with an increase in the value of unsold high priced fund holdings. Accordingly, you can always sell shares of your mutual fund for profits.

Many people find investing in mutual funds an attractive option to that of dealing directly with the stock market because it is comparatively safe. In fact, these days, mutual funds have become the first preference of many investors. Mutual funds provide a balanced and better approach compared to conventional stock market alternatives. It has an added advantage of investing in several distinct sectors and firms, so, if one company suffers losses, the others may be rising. Investing in mutual funds, therefore, minimizes the loss-bearing risk of monetary assets.

In a nutshell, here are the salient points of the advantages of mutual funds:

1. Cost-effectiveness of investing in mutual funds: The main advantage of investing in mutual funds is the efficient management of your finances. Investors buy funds because they lack the competence and time to manage their own portfolio. It is a cost effective method, especially for a small investor because it is expensive to get a manager to manage individual investments.

investing in mutual funds can be a wise choice, especially for those who plan for an early retirement and hope to enjoy a secure senior citizenship.

2. Diversification: Compared to individual stocks or bonds, mutual funds diversify the risk of bearing loss. The basic intention being to invest in a diverse number of assets in order to overcome the negatives of loss making stocks or bonds by the profits reaped by others.

3. Economy of Scale: The transaction expenses are relatively low as a mutual fund is bought and sold in large amounts of credits.

4. Liquidity: Mutual funds provide the opportunity of converting shares into cash at any point of time.

5. Simplicity: It is easy to buy a mutual fund. Most companies have their own automatic purchase plans, and the minimum investment rates are very small.

Therefore, investing in mutual funds is certainly a secure investment as the chance of loss is spread out, and the opportunity for gains are numerous. At the same time, it is both cost-effective and an investment that gives great future returns.

The days of depending on government largesse in meeting old age financial requirements are growing dimmer by the day.

Joe Kenny writes for the UK Loans Store offering UK secured loans and offer more information on UK bad credit loans and other loan topics available on site.
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Understanding Mutual Funds: Part III

Now you know what a mutual fund is and how it works from: Understanding Mutual Funds I & II. It's time to choose your funds, wether investing on your own or within an employer sponsored plan (i.e. a 401(k), 403(b), 457 or simple IRA to name a few). You would think that this would be the longest article in the series but it's just the opposite. By following a few simple rules you will be able to simplify your choices and be able choose a fund you are comfortable with.

The first rule is to understand that very very few funds outperform the market. This is not like picking an individual stock and hoping to get high returns quickly. Even expert stock-brokers fail to do this most of the time. Mutual funds by design are supposed to lessen their risk through diversification so in most cases it's not feasible to expect them to outperform the market by leaps and bounds. However, there are funds that are consistent outstanding performers. For example, the Dodge and Cox lineup of funds feature several that consistently outperform their respective indexes.

The second is to look for low expense ratios (see Part II of the series) and try to keep them as close to 1% as possible. Expense ratios are one of the biggest reasons that a funds performance internally can be good but the ultimate returns to you the investor are not stellar. Also remember that a sales load can also have a bearing on short term investments so if you're in it for less than five years you may be better off in a no-load fund.

The third rule is to look at turnover within a fund (the frequency of buying and selling of stock by the fund management). As a rule of thumb, funds with a turnover rate of 50% or less will tend to have better expense ratios. If you're a conservative investor, this is something you want to take a close look at.

The final rule is to look at consistency of performance. All funds are required to disclose their returns accurately so when researching try to look for investments with a ten-year track record or longer. Those that perform well against their index with a consistent manager are a desirable trait.

For those of you willing to research the funds on your own one of the best resources is on the web at Yahoo! Finance. The easy to read pages and straight presentation of mutual funds has been top-rated by Kiplingers. If you are looking to compare and contrast funds pick several and search the information that Yahoo has, it will help clarify differences in management style as well as expenses. Also, going to that fund family's web site is also a good way to get information on a particular investment.

You can also always call an investment professional for advice as well. But one caveat: beware of what are known as "proprietary funds". These are funds that are available only through that company's brokerage. Company's such as Smith Barney and Merrill Lynch often pay higher commissions to brokers that work for them to sell such funds. Proprietary funds are easy to pick out, they simply bear the name of the brokerage that sells them. If you consult with someone who offers you these types of investments make sure that performance and expense ratios are in line with your goals.

Bear in mind that investing in general has inherent market risk associated with it. This article is meant for eduational purposes and doesn't take the place of professional advice or the information contained within a prospectus. This article does not endorse or detract from any investment or fund family, always seek the advice of a professional or read any prospectus before investing.

Rick Ramos has sold securities and is a licensed insurance producer for the State of Illinois. His articles regarding estate planning, retirement and investing have been featured on numerous websites. If you have any questions or would like more information you can send them to: rick@insuranceblueprint.com.

Money Market Mutual Funds

“I don't want to be left behind. In fact, I want to be here before the action starts.” -Kerry Packer

Money market mutual funds are a great alternative, for the less affluent investors, to Treasury bills and certificates of deposits. This is because money market mutual funds require less money to be paid out up front. Treasury bills often require thousands of dollars to begin investing. Money market mutual funds are extremely popular, due in part because of their liquidity. This type of fund acts much like a savings account.

Future investors can allow their money to accumulate in a money market mutual fund until there is enough money available to invest in stocks, bonds, and regular mutual funds. Money market funds can be seen a building block for a new investor on his way to creating an investment portfolio. An investor can easily place more money into this fund or remove money when it is needed. There is no paperwork, additional fees, or commissions to a financial advisor.

Money market mutual funds are a great place to rollover investments while trying to decide on your next financial move. For example, if you have stock in a company that is going belly up and you decide to sell, you can place your money in this type of mutual fund until you decide what you will ultimately do with profits.

Another great benefit is that money market mutual funds have a higher rate of interest then a normal savings account. A normal savings account may have a rate of return that is well under 1% however, money markets have an average interest rate of 4.5%. Over a couple of years time, this can create a nice profit to pay for a vacation or to reinvest.

Traditional money market accounts usually need an original investment of at least $5000 dollars however a money market mutual fund can be opened with just $500 dollars and does not require the use of financial advisor or brokerage firm. They can be purchased through a local bank. Banks will often supply a financial manager, for free, that can answer some basic investing questions and even offer advice and direction in building your financial freedom.

Money market mutual funds like equity mutual funds have given options to the small and casual investors. These money market funds are extremely safe, low risk, and offer liquidity. In addition, money market accounts can actually be tax exempt and can a good way to save money without having to pay federal, state, and local taxes on it.

Visit the Global Investment Institute and signup for our free Investing For Beginners E-Course at http://www.Global-Investment-Institute.com

Investment webmasters or publishers, please feel free to use this article provided this reference is included and all links remain active.

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