What Are Mutual Funds – Before learning how mutual funds works, we need to know what are mutuals funds. According to Wikipedia, mutual funds are professionally managed type of collective investment scheme that pools money from many investors (individual and institutional investors) to form a massive asset base.
Mutual funds assets are then entrusted to a full time professional fund manager who develops and maintains a diversified portfolio of security investments. People who buy shares of a mutual fund are its owners or shareholders.
Their purchases provide the money for a mutual fund to buy securities such as stocks and bonds. A mutual can make money from its securities investments in two ways: a security can pay dividends and interest to the fund, or a security can rise in value.
The fund passes any dividends, interest or profits on the sale of its portfolio securities, less fund expenses, to shareholders in the form of distributions.
With many great benefits of mutual fund investing, many financially educated individuals are now investing in mutual funds and become one of their best investment options.