Introduction to Mutual Funds

By Arjun Chandrasekar.

Overview

Mutual funds are a popular form of investing, consisting of a portfolio of stocks, bonds, ETFs, and other assets. This diversified portfolio gives investors access to generally low-priced trades for higher returns. Mutual funds are typically managed in a more active way, meaning investing in them allows for a higher potential profit. One of the most important things to realize about investing in mutual funds is that the share prices are final after market closes, and investors can’t change their portfolios throughout the day.

Reason

Investors mainly choose to invest in mutual funds because of their affordability and diversity. A professional manager builds your portfolio and executes your trades for you, so you gain  additional support throughout the investing process. As mutual funds hold a portfolio of a variety of assets, investors won’t have to worry about 1 or 2 share prices dropping significantly, as they will most likely have 1 or 2 share prices rising significantly, causing an ideal balance. Just like any investment, mutual funds can cause you to lose money, and there is always risk involved. However, the vast diversification involves spreading the risk across various holdings within the mutual fund, making it less volatile and much more consistent in its returns. 

So now you might ask, how can I make money off of mutual funds? Well, there are 2 main sources of positive income; dividends and capital gain. When you purchase shares in a mutual fund, you have 2 options regarding dividends: receiving dividend distributions instantly, or asking your professional manager to reinvest them into the mutual fund to build upon your status. Secondly, you can gain money through capital gain. For regular stocks and bonds, when share prices go up, you receive a profit, and when they go down, you suffer a loss. However, when mutual funds sell securities or other assets, which have an increase in price, their investors receive a capital gain even when they have decreased in price. Mutual funds will distribute these capital gains to their investors, just like they do for dividends, so investors gain a positive return. 

All in all, mutual funds are a great investment for those looking to grow their portfolio in a safe, steady manner.  Now let’s look at some popular ones for you to possibly choose from.

Popular Mutual Funds

When evaluating the best mutual funds for investment, there are multiple factors to take into account; these factors include whether you’re investing for the short-term or long-term, what type of fees you would have to pay, the general rate of return, and the overall performance of the fund. We’ve compiled an up-to-date list of the top 3 mutual funds to invest in right now.

1. Vanguard 500 Index Fund Admiral 
   1. This fund has an AUM value of approximetely $167 billion, a dividend yield of 1.7%, and a 10-year annualized return rate of 13.8%. 1  share of this fund currently is at about $17.00. 1 share of this fund is currently at about $368.00.
2. Vanguard U.S. Growth Fund Investor
   1. This fund has an AUM value of approximetely $38.6 billion, a dividend yield of 0.2%, and a 10-year annualized return rate of 18.4%. 1 share of this fund is currently at about $67.00.
3. Fidelity Strategic Dividend & Income Fund
   1. This fund has an AUM value of approximetely $4.4 billion, a dividend yield of 2,1%, and a 10-year annualized return rate of 9.8%. 1 share of this fund is currently at about $17.00.

*AUM = Assets Under Management

Conclusion

So now that we’ve gone over an overview of mutual funds, their purpose, and some popular ones to invest in, let’s finish up with a quick recap. Investors are drawn to mutual funds because of the diversified portfolios and the increased safety that comes with it. Mutual funds generally don’t significantly rise or fall because the assets within the fund balance out the overall share price. In a nutshell, mutual funds are simple sources of income and safe to invest in, especially if you’re a beginner investor just looking to learn more.

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