Finance, Forex and Investments

How do i get involved with mutual funds?

How do i get involved with mutual funds? How do i get stared? I know it has somthing to do with stocks. Please give me as many details as possible.

Public Comments

1. Start reading Money Magazine. It has a wealth of information.
2. Mutual funds are basket of a particular type of product. Money Market funds have a portfolio of short term (one year or less) fixed income products. T-Bills, bonds, etc Others have stocks and a few derivatives in them for hedging purposes. Some have only bonds in them. Some are domestic investments only whereas others focus on the international markets. Government's securities and exchange commission's explanation: http://www.sec.gov/answers/mutfund.htm Basics: http://www.marketwatch.com/pf/started/GettingStarted_fundintro.asp http://mutualfunds.about.com/cs/beforeinvesting/bb/before.htm Glossary for mutual fund terms: http://www.fool.com/mutualfunds/glossary.htm Here is an example of a bank that offers these. When you click on one of the names, it will give you the minimum required investment, risk tolerance, etc. There many companies that offer them but this will give you an idea. http://www.tdassetmanagement.com/Content/Products/MutualFunds/Funds/p_FundTable.asp?PID=5
3. Mutual funds should be a part of every investor's portfolio. There a 2 ways you can get started. Either open an account from one of the major mutual fund companies or open a brokerage account with a company that sells all types of investment products. If you're not planning to invest in individual stocks and etf's, then stick with one of the major mutual fund companies like Vanguard or ... http://www.mfea.com/FundCompanies/default.asp Start with an index fund. This will provide you with good diversification and minimize your risk. After researching and selecting a company, you can usually complete a form on line to obtain an account number. Once you have this number, you can mail a check to fund the account and specify which fund you want your monies to go into. ///
4. There are 3 good places to get info on mutul funds: 1) http://www.investopedia.com/articles/basics/03/040403.asp 2) http://www.invest-for-retirement.com 3) Mutual Funds for Dummies, by Eric Tyson A mutual fund is often described as a pooled investment vehicle. Investors combine their money, the manager buys stocks/bonds on their behalf, and each investor then owns a weighted percentage of the whole pool. This is a pretty accurate description. However, a mutual fund is technically a company. (It exists more on paper than a physical location, because it does not own a building.) Just like all companies, a mutual fund has assets, liabilities, and equity. A mutual fund's assets are stocks, bonds, money market securities, or any tradable investment security. Its liabilities are anything the company owes like managerial salaries, trading costs, and other expenses. Subtract the liabilities from the assets and you have net assets (also called equity). This equity is what the shareholders own. The main difference between a regular company and a mutual fund is that a fund's assets are always shrinking and growing based on the total amount of money invested by all the fund's shareholders. On the other hand, a regular company's assets are mostly fixed and illiquid. When you wish to purchase shares of a mutual fund, you send in your cash through a check or electronic transfer. The cash is first deposited into an investment bank who acts as a trustee for the mutual fund and you. The fund manager will purchase securities on your behalf with debit from the investment bank. She will buy the equivalent number of stocks/bonds that your payment can purchase on the market. The manager will then create more mutual fund shares and place them in your custodial account. Your fund shares represent a portion of the total assets held by the fund. The process also runs in reverse. When you wish to sell or redeem your mutual fund shares, simply contact the fund company (by phone or their web site). The manager will remove your mutual fund shares from your custodial account. She will then sell the appropriate number of stocks/bonds - the portion represented by your mutual fund shares - on the market. The sale of these securities will generate a credit with the investment bank who then sends the cash back to you. You don't have to worry about the fund running out of shares or having too many. The shares of a mutual fund can be created or deleted, as needed, to adjust for the total amount of money invested in the fund. This format is known as an open-ended mutual fund, the most preferred form of a mutual fund. The shares of the fund itself are merely representations of ownership in the underlying stocks and bonds held by the manager on your behalf. The actual number of fund shares you hold has no real meaning, since the manager arbitrarily creates the cutoff price for one fund share. The change in price of each share and your total value are what's important. At the end of the trading day (4 pm Eastern time), the manager will add up the closing market prices of all stocks and bonds the fund owns, which is the fund's total assets. The manager then subtracts all the liabilities (expenses of the fund). The remaining amount is net assets. Divide the net assets of the fund by the number of outstanding mutual fund shares, and you arrive at the Net Asset Value (NAV) of one share. The NAV is the amount of equity that one mutual fund share entitles its owner to. Even though a mutual fund reports an annual expense ratio, it actually spreads the expenses out over the entire year. The fund manager does not extract the expenses from you at one time. The fund expenses are already factored into the NAV each day. When the stocks/bonds that a fund owns pay dividends/interest, the manager passes this money on to the fund shareholders. She is required, by law, to do so. She can pay this money to you (electronic transfer to your checking account). Or, she can reinvest that money to buy more stocks/bonds on your behalf, and will issue you more mutual fund shares to represent this. In most cases, you are allowed to choose which option you want. Obviously, for retirement investing you should have management reinvest your dividends/interest. This is how compounding works. (In most retirement accounts, the reinvest option is set by default.) If the manager decides to sell stocks/bonds for the good of the fund (not because you are redeeming your mutual fund shares), she is required to pass on any capital gains to you. For example, let us say the manager of the Fidelity Growth Fund has decided to get rid of Dell's stock and go with Apple instead, because she thinks Apple will generate better returns. She sells Dell's stock on the market to get cash to buy Apple's stock. But, since she is able to sell Dell's stock at a higher price than what she originally bought it at years ago, she makes a capital gain. The SEC says she is required to pass this capital gain on to the shareholders of the mutual fund. And once again, you can choose to have this money paid to you or reinvested in more mutual fund shares.