Benefits of Mutual Funds

September 20, 2014 Posted by admin

Of the many different ways in which you can invest your money, mutual funds are one of the more popular choices among both individuals and financial planning firms. Unlike stocks and bonds, they offer a greater variability in terms of the amount of money you can invest and the ways in which you can withdraw and reinvest your funds. This makes them a good fit for many individuals just beginning to explore their investment options, as well as those who want to have more control over their portfolio.

What are Mutual Funds?

Mutual funds are basically an investment co-op. Several people put their money into a single investment portfolio underneath the direction of a fund manager or other investment professional. The return is set an annual fixed fee, so that most of the risk and potential for substantial returns falls on the fund manager or firm. To the consumer, this is much less like an investment in the stock market and more like a bank account with a standard interest rate, even though their money is technically invested in a number of different ventures.

Why Mutual Funds are Popular

Many people prefer mutual funds because their money is under the direction of a financial manager or investment professional who has just as much of a vested interest in the outcome as they do. This offers a great alternative to a broker, who typically takes home a commission rather than a percentage of the money you make. In fact, most brokers have no accountability for an investment gone bad.

In mutual funds, however, your financial manager makes money only if the portfolio does well. And while you typically get a fixed return rate – and therefore never see the benefits of an incredible return – you can feel safe knowing that your money is working hard with little risk.

Mutual funds also come with a greater range of options than what an individual gets with stocks or bonds. For example, because several people are investing simultaneously, many mutual funds are open for investment at as little as $50. When set against the thousands of dollars typically necessary to get started in the stock market, this means that more people can access a smart financial plan.

You can also usually withdraw your funds faster and more conveniently. Although there may be fees associated with an early withdrawal of your investment, they are usually smaller than what you can expect from a different type of investment, and you’ll see the cash in hand in as little as three business days.

Are Mutual Funds Right for You?

Still, despite these advantages, mutual funds aren’t right for everyone. They are lower risk than what many investors are looking for, and many people actually need the rigor of an investment they aren’t allowed to touch for several years in order to be successful at investing.

Before you make the decision to purchase mutual funds, it’s best to discuss your options with your financial advisor or investment firm.

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