Mutual fund

Mutual fund

Mutual fund is a form of collective investment that pools money from many

investors and invests their money in stocks, bonds, short-term money market

instruments, and other securities. In a mutual fund, the manager trades the fund’s

underlying securities, realizing capital gains or losses, and collects the dividend or

interest income. The investment proceeds are then passed along to the individual

investors.

Mutual funds are purchased either: directly from a company or indirectly from a

sales agent, including securitie firms, banks and financial planners.

Usage of Mutual fund

Mutual funds can invest in many different kinds of securities. The most common

are cash, stock, and bonds, but there are a lot of sub-categories. Stock funds, can

invest primarily in the shares of a particular industry, such as technology or utilities.

These are called sector funds.

Most mutual funds’ investment portfolios are continually adjusted by a

professional manager, who forecasts the future performance of investments

appropriate for the fund. A mutual fund is administered through a main management

company, which may hire or fire fund managers.

Mutual funds are subject to a special set of regulatory, accounting, and tax rules.

They are not taxed on their income as long as they distribute substantially all of it to

their shareholders. Also, the type of income they earn is often unchanged as it passes

through to the shareholders. Mutual fund distributions of tax-free municipal bond

income are also tax-free to the shareholder.

Types of mutual funds

The term mutual fundis the name for an open-end investment company. Open-end

means that, at the end of a day, the fund issues new shares to investors and buys back

shares from investors wishing to leave the fund. Mutual funds can be structured as

corporations or business trusts.

Exchange-traded funds

The exchange traded fund (ETF), is often formulated as an open-end investment

company. ETFs is made of mutual funds and closed-end funds. An ETF usually tracks

a stock index. Shares are issued by institutional investors in large blocks. Investors

purchase shares in small quantities through brokers at a small discount to the net asset

value; this is how the institutional investor makes its profit. ETFs are more efficient

than traditional mutual funds and therefore tend to have lower expenses. ETFs are

traded throughout the day on a stock exchange, just like closed-end funds.

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Equity funds

Equity funds, are the most common type of mutual fund. Often equity funds focus

investments on particular strategies and certain types of issuers. A stock fund or also

known as an equity fund is a fund that invests in stocks. These funds are typically

held in stock or cash.. The objective of an equity fund is long-term growth through

capital appreciation, dividends and interest are also sources of revenue.

Bond funds

Bond funds account for 18% of mutual fund assets. Types of bond funds includs:

• term-funds, which have a fixed set of time before they mature.

• Municipal bond funds generally have lower returns, but have tax advantages

and lower risk.

• High-yield bond funds invest in corporate bonds, including high-yield or junk