Investing in mutual funds for beginners
No matter if you are rebuilding your business or just have some cash you want to make work for you, if you consider an investment with smaller capital – the mutual fund is the solution. You may heard a lot about it, in fact, every second family in USA for e.g. has shares in a mutual fund.
If you just start now, you will want to know – what really is the mutual fund, how it works, how to choose a good one and how to invest.
The mutual fund is a pool, where individual investors collect their capital; the money in the fund are controlled by professional money managers, who invest them and constantly monitor the stock and the investments. The managers don’t work for the fund – there are no employees, they are contracted to manage the investments and get commissions for that. The mutual fund also has board of directors, who represent the shareholders.
The mutual funds always have an objective or purpose, which show and in what to be invested the money – investment period, type etc.
The mutual funds are widely used, because they allow ordinary people to take part in big stock operations and share profits; losses, too.
So how it works?
It is simple – the investors buy shares from the mutual fund, giving their capital to invested. The fund takes the money and invest them according its objectives; and after a year you will get the dividends.
The mutual funds have minimum amount to be invested and the sum vary between -$25 and $100 000; most of the investments are around – $1000 – $25 000.
How to invest in a mutual fund?
It is simple – you can enter the fund’s web page and download an application; to call them; or to go in their office. After you have chosen the fund, you send you application with a check of your investments; the manager receive it and make sure to sent you back document for the number of shares you have. After he knows how much additional capital has to invest and buy shares from – P&G ( e.g.); the investor receive the necessary document and owns parts of the company. Usually the cash is kept in the fund, which use it to pay the dividends to its shareholders at the end of the year.
How to choose a successful mutual fund?
To find a profitable mutual fund is not an easy task, knowing that there are thousands of them, but there are things to look at to increase your chance of success. Many people look at the fund’s past performance, if it shows success, but the money manager are sometimes changed, without you to know about it, so someone else may invest your money ( not the successful one). Taking a look at the manager’s evaluation is the better way- knowing which are the best in this huge industry is more important.
You should also pay attention at the fees and taxes the fund has, they must be according to the law and as low as they can be. Mutual fund are great way to ensure money for retirement, new house or college education, if you invest smart.