What Is a Mutual Fund?

Since the creation of the first modern-day mutual fund, the Massachusetts Investors Trust, in 1924, there has been a steady growth of mutual funds. Today there are over 8,000 mutual funds.1 Because of their convenience and flexibility, you might want to consider including mutual funds in your investment portfolio.

A mutual fund is a collection of stocks, bonds, and other securities that is purchased and professionally managed by an investment company with the capital from a group of investors. When you invest in a mutual fund, the investment company pools your money with that of other investors that is invested to pursue the objectives stated in the mutual fund prospectus.

As a mutual fund shareholder, you gain an equity position in the fund and, therefore, in all of the underlying securities. You share in any gains and/or losses of the fund. The mutual fund manager trades securities, incurring capital gains or losses, and generates dividend or interest income. Some mutual funds hold securities that offer the potential for capital appreciation. When these securities are sold by the fund, it distributes the profits from the sale to its shareholders in the form of capital gains. Most mutual funds will automatically reinvest your dividends and capital gains in additional shares, if you’d like.

You can redeem your mutual fund shares at any time for their current market value. The value of mutual fund shares is determined daily, based on the total value of the fund divided by the number of shares purchased. The return and principal value of mutual fund shares fluctuate with market conditions; shares, when redeemed, may be worth more or less than their original cost.

Purchasing shares in a mutual fund can give you access to a diversified portfolio, often without having to spend a large chunk of money and time deciding which types of individual securities to purchase on your own. In addition, you benefit from having your investment managed by a financial professional. Diversification is a method to help manage investment risk, but it does not guarantee a profit or protect against investment loss.

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 whether to invest.

Source: 

1) Investment Company Institute, 2015

The information in this article is not intended to be tax or legal advice, and it may not be relied on for the purpose of avoiding any federal tax penalties. You are encouraged to seek tax or legal advice from an independent professional advisor. The content is derived from sources believed to be accurate. Neither the information presented nor any opinion expressed constitutes a solicitation for the purchase or sale of any security. This material was written and prepared by Emerald. © 2016 Emerald Connect, LLC

Securities, investment advisory and financial planning services offered through qualified registered representatives of MML Investors Services, LLC., Member SIPC 525 Junction Road, Suite 8100 North, Madison, WI 53717 (608) 829-0015.  Summit Street Wealth Management is not a subsidiary or affiliate of MML Investors Services, LLC or its affiliated companies. CRN201805-202172

The information contained in this article is for general use and while we believe all information to be reliable and accurate, it is important to remember individual situations may be entirely different. Therefore, information should be relied upon only when coordinated with professional tax and financial advice. Neither the information presented nor any opinion expressed constitutes a representation by us or a solicitation of the purchase or sale of any insurance or securities products and services. Written and published by EmeraldConnect.