Types of mutual funds
The concept of mutual fund has been in existence since a long time. A mutual fund company is actually a place where the concerned person’s money is stored and then it is put to multiple investment types. This process is known as the portfolio. The examples of funds and investments which make up the mutual funds are the bonds, money market funds and the stocks. There are though other funds too which make up the mutual funds. The mutual funds are managed by a professional investment manager. The work of the professional investment manager is to buy and sell the securities so as to ensure the best possible growth of the concerned funds. When a person invests in a mutual fund company he or she becomes the shareholder of the concerned mutual fund company. When the company makes profits, like any other shares these shares will also earn the shareholders dividends. And like other shares, in case of losses the values of the shares will decrease.
Basic principle:
The mutual funds are very diverse in nature and so are their definitions. The mutual funds are actually made up of a number of investments. The basic principle of the mutual funds is to lower the risk of the concerned customer’s funds. It allows the diverse distribution of investments. It also reduces the risk of the investment of the total money in one place. This problem is popularly referred to as the problem of “all of your eggs in one basket”.
Mutual funds are managed by some one else and not by the investors themselves. For the purpose of managing the mutual funds a person called the professional investment manager is appointed. But just because the funds are handled by some one else, one need not worry about the investments as the professional investments manager are well experienced and trained to handle investment issues. It also reduces the problem of record keeping on the customer’s part. It allows the customer to be free of all worries. It allows the customer to just buy the securities and forget about them. The task of managing the investments is controlled completely by the professional investment manager. But then it is always better to be careful as after all the money is in others hands.
Reliability of the professional investment manager:
The remuneration of the professional investment manager depends upon the working of the funds and the returns from the investments. The returns come in the form of dividends. As the compensation of the manager comes from the working of the investments thus one can be assured that the managers will work efficiently atleast for their own sake.
Types of mutual funds:
Mutual funds are of two types. The two types are ‘open ended mutual funds’ and the closed ended mutual funds’. The common belief is that all mutual funds are open ended but the truth is that the putting of the closed ended funds is a completely different category of mutual fund investments.