Is Investing In A Mutual Fund Worth Your While? Part One
So you are looking to invest in a mutual fund but you are not sure if it is worth your while. This article can help you weigh the pros and cons of taking on such an investment. A mutual fund is set up like a corporation that pools money from a bunch of different investors and invests it in different types of securities. Mutual funds have a fund manager that buys and sells the fund's investments. This fund manager charges a fee for you to use his or her services. For the basics of mutual funds, see my article "Understanding Mutual Funds for Beginners." For details on the expenses associated with mutual funds, see my article "Understanding the Expenses that Come with Mutual Funds."
Many critics of mutual funds are quick to point out that in addition to management fees, which can be quite expensive, other expenses are associated with mutual funds as well. In addition to management fees are non management expenses, which cover transfer agent expenses, the cost of holding the fund's money in the bank, registration expenses, money to go into the pocket of a mutual fund's board of directors/trustees, printing and postage expenses and fund accounting expenses.
An additional expense that is associated with mutual funds is brokerage commissions. Whenever a security is bought and sold, a broker's fee is charged that the mutual fund will have to pay for. Because mutual funds involve numerous transactions, brokerage commissions can really add up.
However, the fund manager is bound by a responsibility to find the best deals and the lowest brokerage commissions that she can for you. A broker may provide a "deal" to the mutual fund as well. An example might be a reduction in commission charged for buying similar securities, or a deal that involves a lower commission for the mutual fund if it commits to buy more of the fund within a set period of time.
Mutual funds also offer several advantages over investing in stocks individually. For investors who are just beginning, having a professional fund manager's expertise and time to research and manage investment options can be quite helpful. And, exposure to hundreds of individual stocks or bonds with a single purchase can be quite powerful as well. To Be Continued In Part Two.
Article Source: FxTradingStock.com
About the Author
Mallory Megan works at Rapid Recovery Solution and writes articles on medical collection agencies.
by: Mallory Megan
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Date: Sat, 10 Jul 2010
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