It seems the popularity of mutual funds continues to grow; but why? What makes mutual funds so attractive to investors?
What is a Mutual Fund?
We should probably start by giving you a quick definition of a mutual fund. The Securities and Exchange Commission (SEC) defines a mutual fund the following way - “A mutual fund is a company that brings together money from many people and invests it in stocks, bonds or other assets. The combined holdings of stocks, bonds or other assets the fund owns are known as its portfolio. Each investor in the fund owns shares, which represent a part of these holdings.”
So to address the question at hand, there are primarily four reasons mutual funds are attractive to investors - Convenience, Professional Management, Flexibility, and Diversification. Let’s take a closer look at each of the four.
Mutual funds offer convenience. Periodic statements describe your transactions and details of your account. You may be able to have any dividends reinvested in additional fund shares. And if you invest in a family of funds, you may be able to shift your balances among funds quickly and easily over the telephone or through a website.
When you purchase a mutual fund you can take advantage of professional management. Portfolio managers supply the knowledge and technical expertise for buying, monitoring, and selling securities on a daily basis.
Mutual funds allow investors a high degree of flexibility. Mutual funds let you customize your investment portfolio. You can choose from a wide variety of investment styles and objectives to suit your investment profile. You can also adjust quickly to changes in your lifestyle or your market outlook.
Lastly, mutual funds offer a measure of diversification. They can invest over a wide range of securities, industries, or asset classes. This may help reduce investment risk and enhance long-term return potential. Of course, you should be aware that diversification does not guarantee profit or protection against loss; it’s a method to help you manage investment risk.
Mutual funds are sold by prospectus. Please consider the investment objectives, risks, charges, and expenses carefully before investing. The prospectus, which contains this and other information about the investment company, can be obtained from your financial professional. Be sure to read the prospectus carefully before deciding to invest.