Mutual Funds, Classifications, Investment Plans, Advantages and Disadvantages, and Myths

Mutual Funds
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Table of Contents
Mutual Funds 
Introduction 
History of Mutual Funds 
How Mutual Funds are Set Up. 
Classification of Mutual Funds 
Investment Plans and Options for Investors 
Advantages and Disadvantages of Mutual Funds 
Advantages of Mutual Funds
Disadvantages of Mutual Funds 
The Mutual Funds Myths 
Mutual Fund Fees and Expenses 
Conclusion
References 
Mutual Funds
Introduction
Mutual fund refers to a trust that pools funds from the investors who share a common financial objective, and invest them in different classes of assets as specified in the investment goal. In other words, a mutual fund is a financial arbitrator, founded with the aim of professionally managing the money collected from investors. Essentially, since the funds are mutual, all of the proceeds, less the incurred expenses, are mutually shared by the genuine investors. The large pool of funds allows investors to the benefits incurred in large economies of scale. For instance, the money can be used to purchase stocks or bonds at a slightly lower price compared to direct investment in capital markets. In addition, mutual fund permits of diversification of portfolios, low costs, flexibility, and convenience. Thus, the mutual fund provides an indirect avenue for investors to invest in capital markets. The fund managers charge a considerable amount of money based on the value of the assets as fees for administering and managing the funds. In a mutual fund plan, investors receive returns that correspond with the amount of money the invested. The units of returns represent an investor proportionate ownership into the assets of the scheme and liabilities in case of losses since the returns are limited to the extent of the money invested by each investor.
The biggest strength of mutual fund is its ability to pool resources. Investors are only required to come up with relatively small amounts of money which are pooled together enabling them to benefit of professionally money management. In addition, the Mutual fund allows small retail investors to access different investment portfolios in the capital market, which they might not be able to access. Fund manager refers to the investment experts who collect money on behalf of the retail investors. The managers are bestowed with the primary responsibility of taking making investment decision relating to identifying and selecting saleable securities and setting appropriate proportionate to investment. The investment decisions are controlled by prescribed rules defined in the objective of the mutual fund. In others words, all investment plan are subject to governing restraints. Also, the governing guidelines help retail investors in selecting the right fund to invest in while considering their investment purpose as well based on the investment goal and patterns.
In the U.S. capital market today, there are always a variety of investment schemes offered by mutual funds that suit different investors’ objective. For instance, risk-averse investors are catered for in schemes characterized by capital protection plans. Another variety of investment pl...