How to Invest In A Mutual Fund

In this article I will provide information regarding mutual funds, the advantages and disadvantages of investing in mutual funds, what factors you need to check before investing in mutual fund and some terminologies that you need to know regarding mutual funds.

Mutual funds and why you must invest in mutual funds

If you want to invest your money and earn a good income from it with minimum risk then mutual funds may the perfect solution for you. Don't worry if you have no previous experience in stock market or investment. Mutual fund is a collective investment where money from many investors like you is put together to buy stocks, bonds and other assets and which is generally managed by professionals.

Mutual fund is good for new investors who have no previous experience in this field. All your money won't be invested in a single stock but will be invested in a wide range of stocks, so if one or two of the stocks don't do well, then it will be made up by other stock investments. Also you will be able to invest in large stocks and investments which are usually available only to the large investors as a result.

The main advantage of mutual funds is that your money will be managed by professionals who have years of experience in the stock market and can make sensible investments for you. Hence there is less chances of mistakes as against if you venture out yourself to invest in stock market. Investing in mutual funds is much easier and convenient and is overlooked by the government.

Before going for investing in mutual funds read the prospectus thoroughly and carefully. Try to understand the objective and the strategy of the mutual fund company. Also take a note of the risks involved, past performance of the Mutual Fund Company and the various fees.

Before investing in mutual funds know that you need to pay fees ranging from advisory fee, operating fee, administration fee, account fee, redemption fee etc. Please note that you have to pay these fees every year regardless of how good or bad your fund is doing so this is the most important point to be considered.

About the technical aspects of mutual fund

Then main thing that you need to know is the mutual fund's net asset value. It is the actual price per share.
Net asset value (mutual fund) = total assets – liabilities
Net asset value ( per share )= net asset value/total outstanding shares
This is the price of the stock. In simple words you have to pay this amount on joining the fund and if you want to discontinue, then this is the amount that will be paid to you. This is the figure one needs to check before investing. This figure is daily calculated in the closing market price or at the end of the trading day.

There are two types of mutual funds- Open ended and close ended. The difference is that in open ended fund anyone can join and invest as much as they want to as there is no limit to the amount of the shares available whereas in the closed ended type there are certain restrictions as there are a limited number of shares.

There is one more aspect that you need to know, that mutual funds are of two types, the load and no load funds. In simple words, the load funds charge a commission whereas the no load is commission free. If you join a load fund then you will need to pay an extra fee known as sales load. This will decrease your profit margin and it is better if you are a beginner to opt for the no load fund. However if you find that the various fees that you need to pay are less then you can go for the load mutual fund.

So I would suggest you to do a thorough understanding about funds and make your decision accordingly. You can make a good deal of money if you make the right decisions and take calculated risks.

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