There is multitude of mutual funds. Investors are practically spoilt for choices when it comes to mutual fund investing.
Prior to investing in any specific fund, consider if the investment strategy and risks of the fund are appropriate for you. The initial step to successful investing is setting your financial goals and risk tolerance either by yourself or by consulting an expert. After you know the reasons for your savings, the time frame in which you’ll require the money, and the level of your risk tolerance, it becomes simpler for you to restrict your choices.
Many mutual funds fall in one of 3 major categories - money market funds, bond funds (or “fixed income” funds), and stock funds (or “equity” funds). Every variety has different characteristics and different risks and rewards. Usually higher the expected return, higher the chances of loss.
Money Market Funds:
Money market funds carry comparatively lower risks as against other mutual funds. Investor losses are rare, though they can occur. Money market funds pay dividends that are based on short-term interest rates, and traditionally the returns for money market funds are lesser than the bond or stock funds.
Bond Funds:
Bond funds are riskier than money market funds, mainly because they adopt strategies for giving higher yields. As there are various types of bonds, bond funds can differ drastically in their risks and rewards.
Stock Funds:
Though a stock fund’s value can change quickly and drastically in short run, traditionally stocks have given better returns in the long term than other types of investments, even corporate bonds and government bonds included.
To buy the shares in mutual funds, contact the fund directly. Other mutual fund shares can be bought chiefly from brokers, banks, financial planners, or insurance agents. All mutual funds will let you redeem (sell) your shares on any working day.
Remember any type of investment carries some amount of risk. Hence it is advisable to consult the professional before taking any decisions.