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Mutual Funds, In a Nutshell

Tuesday, 18 Jan 2011 10:18 AM

If you have money to invest, but do not know where to invest or how to invest, mutual fund companies can make the job easy for you.You can invest in:
  • Closed-ended funds that offer a limited number of shares, or
  • Open-ended funds that offer any number of shares.
Where do mutual funds invest?
Mutual funds invest in stocks, bonds, and cash. Here, cash includes money market instruments such as call money, treasury bills, certificates of deposit, reverse repos, and commercial paper as well as regular bank deposits.
Growth mutual funds invest in rapidly growing businesses. These are businesses growing at an average rate of at least 10%. The primary objective of growth mutual funds is to provide capital appreciation.
Money market mutual funds invest in money market instruments. Although this assures that the investment is safe, the dividends realized are modest.
Stock mutual funds invest primarily in stocks. Riskier than other types, these are popular since they can generate higher returns on your investment.
Bond mutual funds invest in bonds and other debt securities. Bond mutual funds seek to protect the investment and pay out regular income. Bond mutual funds are preferred by investors who want a safe sum of money at monthly intervals without taking much risk of market volatility.
Dividend mutual funds primarily invest in preferred shares or common shares that generate a higher return. Dividend mutual funds seek to maximize dividend income and the resulting dividend tax credit.
What is NAV?
Net asset value, or NAV, is a measure of performance. It is the actual value of a share or unit on any given business day. If the NAV is more than the face value of the share or unit, the investor’s money has grown. If the NAV is less than the value of the share or unit, the investment has eroded.
How do mutual fund companies make money?
Mutual fund companies seek to attain the best possible price when buying or selling stock on behalf of their investors. To maximize returns for investors, mutual funds try to minimize commission outflow to brokers through proper brokerage arrangements.
Discover mutual fund performance
To ascertain the performance of the funds you have invested in, all you need to do is to take a look at the day’s newspaper. You will immediately see how your mutual fund has performed compared to others. You will also see the top mutual funds and the best mutual funds.

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