What's A Mutual Fund?
A mutual fund is a form of collective investment that gets money from many investors and invests it into some sort of stocks, bonds or other money vehicles. The fund is managed by a fund manager who is responsible for realizing capital gains, losses, and collecting the dividend or interest income. After being collected the fund's income is divided among the investors. The value of a share of a mutual fund is known as "net asset value" (NAV), and it is calculated by dividing the total value of the fund by the number of shares. Mutual funds invest money in various types of securities. The most widespread are cash, stock, bonds, but, of course, there are hundreds of sub-categories. Stock funds can invest in some particular industry; such funds are known as sector funds. Mutual bond funds can vary according to risk (junk bonds or investment-grade corporate bonds); type of issuers (corporations, government agencies etc.); time-terms (long- or short-term). Moreover, mutual funds can be domestic (operating on the territory of one country); global (operating on the territory of a number of countries); international (operating in a foreign country).
Generally, mutual funds are of mixed nature. They often combine stock and bond an investment that reflects a moderate or conservative orientation. The majority of huge funds are operating under the supervision of professional managers who forecast the future investments and profit. As a rule, there exists a parent management company that administers the fund, the company has rights to hire or fire the fund manager. Mutual funds are not taxed as long as they distribute all the income among the shareholders. Sometimes the type of income is unchanged as it passes to the shareholders. Mutual Fund's NAV NAV (the net asset value) is the value of the fund's possessions, expressed as a per-share amount. The majority of funds determine NAV daily after the close of a trading day, but some funds do it several times a day. As for open-end mutual funds, they sell shares at the cost of NAV, so the process of determining it is possible when all the operations are completed. Close-end funds may trade their shares at the prices higher or lower than the nominal NAV (known as Premium or Discount). In case a fund is divided into several classes of shares, each class has its own NAV. It is estimated and affected by the differences in fees and expenses paid by the different classes. Balanced Mutual Funds Balanced Mutual Funds are aimed at the investor who is looking for a combination of modest capital appreciation, income and safety. The money invested into each asset class are usually within a set minimum and maximum. As a rule, balanced mutual funds do not often change their asset mix. Unlike life-circle, target-date, and actively managed asset-allocation funds (which often make changes according to the investors' risk-return appetite and age). |