How Mutual Funds work
Since most Employee Retirement Plans are comprised of a selection of Mutual Funds, it’s important to understand how Mutual Funds work.
1. Mutual Funds are an open-ended fund operated by an investment company
The investment company raises money from shareholders and invests in a group of assets, in accordance with a stated set of objectives.2. Mutual Funds raise money by selling shares to the public
Not unlike how a company might sell its stock to the public, mutual funds raise money by selling shares to the public. The money received from the sale of shares (along with any money made from previous investments) is used to purchase various types of securities (i.e. stocks, bonds and money markets). In return for purchasing of shares, shareholders receive an equity position in the fund, which also means in each of its underlying securities. Mutual fund shareholders can sell their shares at any time.3. Just like individual stocks, the price of a Mutual Fund share will fluctuate daily
The value of a Mutual Fund depends upon the performance of the securities held by the fund.The goal is to wait until the market conditions are right for selling, so a profit can be made.
4. The benefits of investing in Mutual Funds
- Diversification
- Professional money management
- Choice
- Liquidity
- Convenience
