Mutual Funds: Investing in Something Alongside Other People as a Group

Mutual Funds
Student name
Institution
According to Northcott (2009), Mutual funds are means of investing in something alongside other people as a group. Fidelity investment mutual funds, therefore, means investing in projects or investments that have a guarantee of returns. An example of such investment is investing in government bonds or stocks. The advantage of investing as a group rather than an individual is that there is a professional manager whose job is to look after the invested funds and make sure that all necessary adjustment are according to their experience and market changes
The main advantage of investing of mutual funds is that they aggregate larger investments more than an individual can invest alone. This may open up possibilities for investment by a manager who can yield higher returns. It is important to note that the larger the portfolio means that the manager can diversify the holdings more than one can do as an individual and therefore the diversification spreads the risks. There are a wide range of potential purchases for a manager, and therefore, it is not as simple as just buying of some stocks or bonds. There are many variations available for the manager to selection from and the choice of the fund and management will be according to both the risk level acceptable and the optimized returns. Therefore, you can invest in money markets funds, income funds, value funds, index funds, sector funds, international funds and others. Important to note is that successful investment takes time, and the results are that the price you pay for the professional management is relatively cheap as compared with the value that you will receive.
Since the capital and money markets have been in existence people have invested in groups by combining their monies and expertise with the same objective or goal to earn better returns. Hence, mutual funds are the logical extension of ideas where investors pay someone to manage their money and commit the time to research investment resulting in improved investment returns.
The rationale of researching on mutual funds is the need to understand the relationship between risk and return and diversification of investments and their benefits to the individuals. Mutual funds started in the United Kingdom where investment trusts sold shares to investors. Later, this idea was adopted in the United States but in this case, most of the funds were closed end meaning that there were a certain number of shares for sale that were subsequently traded by the owners who made the market. Open ended mutual funds were created by Edward Leffler, who previously sold securities. The timing of these funds was not favorable as they performed poorly following the stock market crash. These compounded the managers to leverage the assets of the investor. This is usually a common practice when the investor feels that the market will only hike and therefore goes ahead and borrows money to multiply his or her gains. The open end funds fared better in the stock market crash compared to closed-end funds. The managers of the closed end funds became very secretive and did not always disclose what shares were held. They even could value the shares at whatever price they chose. This led to dubious practices. I...