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What are Mutual Funds?
Home » Investing » Mutual Funds » What are Mutual Funds?Mutual funds are companies that pool investors’ money in order to invest in numerous types of securities. Conceivably, a mutual fund might restrict the majority of its investments to a single area, but in most cases the portfolio of a mutual fund will include money market funds, stocks and bonds. Investors within a mutual fund are known as shareholders. Dividends are paid on those shares when the mutual fund realizes profit, and the individual share values of a shareholder decrease if the mutual fund suffers a loss.
Investment decisions for the mutual fund are made by an investment manager after an examination of the best possible options available to the fund. There are two general types of purchase arrangements for mutual funds. A load fund is a mutual fund in which the shareholder invests with the help of a salesperson. The “load” in those cases refers to the sales commission charged by the salesperson as a fee for their services. No-load funds are those funds which are sold directly to the investor without the sales fee (and help) of a salesperson.
The spectrum of potential investments within a mutual fund is very large, but there are three general categories of mutual funds. Fixed-income funds consist of corporate or government securities. Such funds are generally low risk because they provide a fixed return. Balanced funds are comprised of stocks and bonds and involve a risk level that is higher than that of fixed-income funds but still relatively moderate. Equity funds are those funds which include only common stock. Equity funds offer higher potential returns that either of the other two types of mutual funds, but the risks are also higher.
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