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Wednesday, May 24, 2017

Basic Things to Know About Mutual Funds

Often when I talk to people about saving money and how to save, they scoff and say "That's not saving. Saving money means actually having money to put aside into savings." When I teach people how to be frugal and save money on their groceries, household expenses, clothing, or anything else, the point is to live within your means enough so that you have excess cash left over after your expenses. That cash, after building an emergency fund, can be saved, and also grown in all sorts of methods, such as mutual funds. Reader Janica Buenconsejo explains a little more about this next option, how you can turn your saved money into more money in the future.

A lot of people are looking for ways to grow their money. Some would start a small business so that they can earn from something they actually want to do, like making accessories or printing shirts. Others would fund a project or a start-up company and expect a sizeable return of investment once it earns. However, some choose to invest their money through buying stocks or bonds.

If you choose the latter, you should that there are many kinds of investments you can choose from, depending on the risk factor and the length of time you want your money to in play. However, if you are afraid of risking money, note that it is not just about buying stocks or bonds; there are less stressful ways of investing. A mutual fund is one such kind of investment and is probably the easiest way to invest in the market, even young adults can start doing it.


Here we will talk about what it is, the types of mutual funds, and the advantages you can get out of investing in a mutual fund.

What are mutual funds?
Basically, a mutual fund is a kind of investment that is made up of a pool of money collected from investors, whether they are individuals, companies, or organizations. This pool of funds is handled by fund managers who will invest it depending on the type of fund chosen by the investors. For instance, a fixed-income fund investment means the fund manager will get the highest yield at the lowest risk.

Do not worry, before you put money in, financial advisers will usually talk you through the different kinds of mutual funds. You just have to discuss with them what your goals are so that they will know how they can help you invest it in a mutual fund.

The difference between closed funds and open-ended funds
Closed-end funds have a specific number of shares that are offered to the public and are traded on the open market. Unlike other mutual funds, the close-end fund shares are subject to the laws of supply and demand. This means that you cannot be issued new shares nor redeem shares, and it will traded at a discount to net asset value.

Open-end funds are the complete opposite, and most mutual funds usually fall under this. As an investor, you can be issued new shares based on the current net asset value and you will be able to redeem new shares if you decide to sell. The open-end funds are further subdivided into two: load and no load.

Load means that it involves a sales commission, to be paid on top of the net asset value of the fund's shares. No load means lower expenses, which means a much higher return for the investor.

Benefits of choosing mutual funds
One of the best things about mutual funds is a dedicated manager constantly monitors it. So even if a person is not knowledgeable in the technicalities of investing, you can be sure that someone can analyze and calculate everything for you. This is why even students can start doing this so that their money is growing while they are still in school because someone is focused only on selecting investments for them. All they need to do is put the money in.

So if you are someone who is busy, a student, or even a homemaker, consider looking into mutual funds. Talk to financial advisers now to help you decide which type you should choose, how much money you can start with, and the length of time you want your money in a mutual fund investment.

See my disclaimer.

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