What are Mutual Funds

What are mutual funds? All about what is a mutual fund and whether you should invest in mutual funds.

Definition of Mutual Funds

Mutual Funds Definition: A mutual fund is an investment company formed under the Investment Act of 1940. Mutual funds must pass at least ninety percent of earnings to investors, and are therefore not taxed on their earnings.

Mutual funds are run by investment professionals who will help you invest your money for you. They market their funds extensively, and also offer good customer service to allow you to track the progress of your mutual funds.

What is a Mutual Fund

However, investing mutual funds is expensive. Costs such as professional management expenses and marketing expenses are passed on to the fund-holders. Also, mutual funds suffer from a notorious lack of transparency. Investment decisions made by the mutual fund do not have to be justified, their daily financial decisions are usually not documented. Mutual fund holders thus may seem to be investing in a black-box – they can see what goes in and what goes out, but no idea what really goes on inside the box.

Introduction to Mutual Funds

Unit Investment Trusts – these are trusts that have a fixed set of investments which will eventually terminate at a certain point. A popular example would be Real Estate Investment Trusts.

Exchange Traded Funds – These are a hybrid of mutual funds and unit investment trusts, as they typically mix some element of management, but are generally inactively managed. Thus, they offer lower costs.

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