Mutual Fund Basics

In its simplest definition, a mutual fund is just a set of bonds or stocks. Think of it this way. A mutual fund company is an entity that collects a set of people, investing their monies in bonds and other forms. Every investor has shares, representing a part of the holdings of the fund as a whole.

How investing in mutual fund can make money for you

# Money is earned from bonds (interests) and stock dividends. The fund would pay all of the revenues acquired over a year to the owners. # When the fund sells securities, capital gains would be received by the fund. # When fund holdings go up in costs but are retained by the manager, the fund's shares go up in prices. One could then sell the shares for profits.

A fund would give the investor a choice -- to get a check (distributions) or to reinvest his or her money to get more shares. If you as the newbie is having a hard time deciding, it would be best to consult a trusted friend or broker who is knowledgeable in the field.

Benefits of investing in mutual funds

# Managed by pros -- Investors' funds are managed by a portfolio manager since they do not have the spare time or the knowledge to handle their own portfolio's assets. # Branching out -- The name of the game is diversification. A loss in investment #1 would be compensated for by gains in investment #2. # Liquidity. Just like individual stocks, this fund would permit a person to have shares be exchanged for cash when emergencies come up.