Mutual Funds have become a very popular investment vehicle for individuals and for companies who offer employee benefit investment plans. One of the reasons for this is the ability of portfolio diversification with a relative smaller investment then is necessary for individual stocks or bonds. Mutual fund companies may invest your money into a portfolio of stocks, bonds and/or other securities made up of a variety of different companies. Values may fluctuate and may be more or less then original investment. Mutual funds are relatively liquid and can usually be converted into cash relatively quickly. Mutual funds carry fees and expenses and may have sales charges or surrender penalties. Mutual funds are sold by prospectus only. Please read the prospectus carefully for details on fees, expenses, restrictions and investment objectives.
Most mutual funds require a minimum initial investment. Mutual fund shares trade like stocks, rising and falling in price depending on investor interest and the performance of stocks in the fund. The Net Asset Value (NAV) of a mutual fund indicates its value or price per share.
Before investing in a mutual fund, find out if it's a load or no-load mutual fund. Load funds charge a sales commission; no-load funds don't. When you pay a sales commission going in, that's called a front-end load. A commission paid when you sell is known as a back-end load. The advantage to a load fund is that there is usually a representative available to explain the fund to you and advise you as to the appropriate time to buy more shares, or sell. If you're a new investor, it might be worth paying the commission for the extra guidance.
Many mutual fund rates don't account for shareholder tax liability. Your actual return after-taxes might wind up much lower than the pre-tax one cited in the magazine or newspaper article rating the mutual funds. Remember, funds with high pre-tax returns don't necessarily offer the best after-tax returns. Not all funds create the same taxes for the investor. Smart investors look for the best total return.
A mutual fund that frequently trades its holdings pays more taxes than a fund that holds its investments long term. Unless you are invested in an Individual Retirement Account (IRA) or other tax-exempt account, you have to pay taxes whenever your fund sells a stock and profits. The more profitable the trades, the more taxes paid. Some fund managers count on attractive short-term returns to attract new investors. If your mutual fund investment is for your retirement, then tax liability may not be important for you now.
Index funds are mutual funds that are more conservative in their approach; they try to match their performance to the performance of the stock or bond markets as a whole. "By purchasing the same securities held in an index such as Standard and Poor's 500 or the Russell 2000, these funds match the return on the markets they index." (NASDR.COM)
Past performance does not guarantee future results. Fund unit values and investment returns will fluctuate. Commissions, trailing commissions, management fees and expenses all may be associated with mutual fund investments. Important information is contained in each mutual fund's prospectus. Please read the prospectus before investing. This is for informational use only and should not be considered solicitation.