What Is A Mutual Fund?

Mutual funds are some of the first things that pop up when new investors are looking for ways to start out, but what is a mutual fund, exactly? Well, essentially, a mutual fund is just what it sounds like — it’s a form of investment made up of multiple small funds from various different investors, all invested in securities like stock or bonds. Mutual funds are usually run by money managers. It’s their job to invest the fund capital and try to produce capital gains for the investor. Mutual funds have portfolios structured to match their investment objectives.

What is a mutual fund?

courtesy of purposefulmoney.com

What Does That Mean For Me?

As a small investor, mutual funds can be a great idea for several reasons. First, it gives you access to a professionally-managed fund even when the money you have to invest is fairly small. You can be part of a diverse portfolio that would not be an option to you with your own small investment alone. You can purchase shares in a mutual fund, which means you benefit from its performance. Mutual funds are also usually invested in stocks that are almost certain to continually grow. They may grow fairly slowly, but they will be secure.

Before you start investing, you need to decide what your goals are. Mutual funds are often best for people who want capital gains over the long term. Do you want to supplement your retirement or pay a bill that will be coming up soon?

You also need to decide on your level of risk tolerance. Do you want to accept possible swings in the value of your portfolio, or do you need to feel secure that your investment is definitely growing? And how long do you want your money to be tied up in the fund? What is a mutual fund doing in your portfolio?

If your goals are long term, a long-term capital appreciation fund is best for you. If you need a current income right now, though, getting shares in an income fund, such as government or corporate debt, might be a better idea. A balanced fund is another option — it allows you to prepare for the long term, without having to assume a big risk.

what is a mutual fund


Where To Invest In A Mutual Fund?

Once upon a time, you had to physically go into a bank and speak to an advisor if you wanted to invest in a mutual fund. Not today! You can find all the information you need online to begin with, or if you’d like to do it the more old fashioned way, there are comprehensive books like Common Sense on Mutual Funds: New Imperatives for the Intelligent Investor or Mutual Funds For Dummies which should help you get started. This is also an area where Robo Advisors are available to help you — check the Robo Advisors tag on this blog for more information about how these programmes can help you arrange your investments. But there’s also the possibility of using a website to help set up a programme which will then be managed by a person.  A site such as Affiliate Finance  can help you invest, no matter what you’d like to put your money into.  The options are endless. But if you’re looking for an investment with low risk to begin with, mutual funds are definitely worth checking out.

Mutual Fund Possible Investments

For a long-term fund, you may like to try The SEI Tax Exempt Trust Fund or Guide Stone Funds Extended Duration. Short term investors may prefer Baird Short Term Fund. For a high yield bond, try Buffalo High Yield or for large growth, T Rowe Price.