MUTUAL FUNDS
This section explains the basics of mutual fund investing -- how a mutual fund works, what factors to consider before investing, and how to avoid common pitfalls. Before you buy a mutual fund, make sure it is right for you.
Why Buy Mutual Funds?
Buying mutual funds can be a good way for people to invest in stocks, bonds, and other securities. Some good reasons are:
- Mutual funds are managed by professional money managers.
- By owning shares in a mutual fund instead of buying individual stocks or bonds directly, your investment risk is spread out.
- Because your mutual fund buys and sells large amounts of securities at a time, its costs are often lower than what you would pay on your own.
There are sources of information that you should consult before you invest in mutual funds. The most important of these is the prospectus of any fund you are considering. The prospectus is the fund's selling document and contains information about costs, risks, past performance, and the fund's investment goals. Request a prospectus from a fund, or from a financial professional if you are using one. Read the prospectus before you invest.
How Mutual Funds Work
A mutual fund is a company that brings together money from many people and invests it in stocks, bonds, or other securities. (The combined holdings of stocks, bonds, or other securities and assets the fund owns are known as its portfolio.) Each investor owns shares, which represent a part of these holdings.
How To Buy and Sell Shares
You can buy some mutual funds by contacting them directly. Others are sold mainly through brokers, banks, financial planners, or insurance agents. All mutual funds will redeem (buy back) your shares on any business day and must send you the payment within seven days.
You can find out the value of your shares in the financial pages of major newspapers; after the fund's name, look for the column marked "NAV."