VIEWS: 9 PAGES: 1 POSTED ON: 10/11/2010
Mutual Funds Investing Mutual Funds Mutual funds are financial intermediaries that collect funds from individual investors and invest these funds in various kinds of securities and/or other assets. Investing in mutual funds provides the benefits of large-scale investing to the small investor. By investing in an investment company, the investor contributes to the pool of assets created by the investment company. The investor's claim in the portfolio established by the investment company is proportional to the amount invested. While all investment companies pool assets of individual investors, they also need to divide claims of those assets among those investors. By investing in investment companies, the investors buy shares in these companies and ownership is proportional to the number of shares purchased. The value of each share is called the net asset value or NAV. Net asset value equals assets minus liabilities expressed on a per-share basis. Open-end and Closed-end Mutual Funds By investing in open-ended mutual funds, the investors have an option to "cash out" their shares at the net asset value at any time. They can also buy new shares. Open-end funds can be redeemed or issued readily at their net asset value. Therefore, the unit capital of an open-ended fund keeps varying over time. The term "mutual funds" refers to open-end mutual funds only. In contrast, by investing in closed-end mutual funds, the investors do not get to redeem their shares all the time. They can get it done only on maturity. New shares too wont be issued. The investors can, however, cash out by selling their shares to other investors. Shares of closed-end funds are traded on organized exchanges and can be purchased through brokers. Their prices can differ from their net asset value. Hence the closed-end funds are less popular when compared to open-ended funds. Therefore, investing in open-ended funds is better than investing in closed-ended funds. To know more about investing in mutual funds visit Investing in Mutual Funds and to understand how mutual funds work visit Mutual Funds.
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