Mutual funds are basically managed portfolio of stocks and/or bonds. Mutual funds are investments that can meet every investor’s unique need. The U.S has ranked over 4500 mutual funds. in all categories. Mutual funds meet all types of investors preferences as they can match any time horizon from short, medium, long, they can also match different investors risk tolerance from low, medium, high and they can be both open or closed-ended irrespective of whether you are making a small or a huge investment. Investors can invest in mutual funds to create wealth, to beat inflation and to save tax. Here are 7 common features of mutual funds that are important to note:
1. Professional Management and Regulations
Most mutual funds are managed by qualified and experienced investment advisers who are registered with the Securities Exchange Commission (SEC). SEC has laid down strict laws and regulations to safeguard investors’ interests. This helps to boost investor confidence.
Most mutual funds spread investments across a wide range of companies, industry sectors based on market capitalization. Equity mutual funds invest in shares of a variety of companies whereas debt funds invest in Treasury securities, bonds, and other fixed-income securities. This diversification helps hedge investors against the risk of loss in some company’s or sector.
3. Low Minimum Investment
Mutual funds pool money from a huge number of investors with common interests. They are ideal even for investors with little money to invest. Investors can make a relatively low initial investment, low subsequent monthly purchases, or both. Investors of mutual funds can benefit from lower trading costs as mutual funds buy and sell a variety of asset classes in large volumes. This helps investors’ to benefit from economies of scale.
Mutual funds are highly liquid more than most individual stocks, deposits, and bonds. Investors can readily redeem all or part of their investments at the next calculated Net Asset Value (NAV) at any point in time in an open-ended fund. This can be done after subtracting any fees and charges assessed on redemption and on any business day. Mutual fund companies are obliged to send investors to pay for the shares within 1 to 7 working days, though many funds provide payment sooner through a standardized process.
5. Costs Regardless of Negative Returns
Investors in mutual funds incur costs such as sales charges, annual fees, management fees, operating fees among other expenses in spite of-of how the mutual fund performs. Investors may also have to pay taxes on any capital gains allocation they get from the fund. These mutual funds associated costs lower the investment returns.
6. Lack of Control
Investors of mutual funds cannot directly control which securities they want to be included in the funds’ portfolios. If you invest in a mutual fund, you give the entire control of your portfolio to the mutual fund investment managers who keep track of markets and find the best investment opportunities on your behalf.
Mutual fund investors receive detailed and timely information on how your money is invested as well.