Understanding What is a Mutual Fund According to The Mutual Fund Education Alliance
More than 80 million people, or one out of every two households in America, invest
in mutual funds. Currently, over $6 trillion
is invested in mutual funds. While funds have been
around since the 1920's, their popularity over the
past 25 years has soared. The reasons:
- mutual funds make it easy and
less costly for investors to satisfy their need
for capital growth, income and/or income preservation
- mutual funds bring diversification
and professional money management to the individual
investor
A mutual fund is a company that pools
the money of many investors -- its shareholders --
to invest in a variety of different securities. Investments
may be in stocks, bonds, money market securities or
some combination of these. Those securities are professionally
managed on behalf of the shareholders, and each investor
holds a pro rata share of the portfolio -- entitled
to any profits when the securities are sold, but subject
to any losses in value as well.
For the individual investor, mutual funds
provide the benefit of having someone else manage
your investments, take care of recordkeeping for your
account, and diversify your dollars over many different
securities that may not be available or affordable
to you otherwise. Today, minimum investment requirements
on many funds are low enough that even the smallest
investor can get started in mutual funds.
A mutual fund's assets are invested in many different securities. Because there are many different types of mutual funds with different objectives and levels of growth potential, a portfolio of different types of mutual funds offers diversification.
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