Mutual Funds

A mutual fund is a financial instrument that pools money (funds) to purchase securities such as stocks, bonds, and other money market instruments. The holdings of a mutual fund is called a portfolio. The portfolio offers shares in the mutual fund. 

Why people buy mutual funds

• Mutual funds are professionally managed. The fund managers select and monitor the performance of the portfolio of the fund.
• Mutual funds are affordable and commonly have a low initial investment.
• Mutual funds are accessible, you can redeem your share quite easily.
• Mutual funds are diverse, which lessens risk.

Their are four categories of mutual funds

1. Stock funds
2. Bond funds
3. Money market funds
4. Target date funds

There are three ways to earn with a mutual fund. First you could earn dividends and receive a distribution. Secondly, you could receive capital gain increases as the fund managers sell securities from the portfolio. Thirdly you wait to your holdings increase and sell your shares for a profit.