Investing in Stock Market through Mutual funds – Introduction to Mutual Funds

Not everyone has the knowledge of stock market to be confident enough to start investing in stock market directly. For stock market investors who are beginners, it is even more challenging to find the the right kind of stocks to buy. A easier option for them is to start investing in stock market through mutual funds.

What are mutual funds?

A mutual fund is a professionally managed scheme in which many investors pool their money and the that money is invested in various kind of financial instruments like stocks, bonds, money market instruments or other securities. The advantage of investing through a mutual funds is that these funds are professionally managed by asset management companies. These companies have all the financial analysis tools available to them and they have god amount of experience in investing in the stock market. This way the small time investors or beginners do not have to worry about technical analysis of stocks or the fundamental analysis of stocks.

What are the different types of mutual funds?

There are various ways in which the mutual funds can be cauterized. Very broadly, the mutual funds can be divided as open ended mutual funds and closed ended mutual funds. The closed ended mutual funds are those which accepts money from investors for a limited time period only. Once that time period is over, the fund is closed and no one can invest in that fund. The fund manager has that amount of money to invest in different kind of securities. In case of open ended mutual funds, the scheme is open for investors to invest or withdraw their money any time without any restriction.

Another way in which the mutual funds can be categorized is the type of securities in which the money is invested. A few main types of mutual funds are:
Mutual funds investing in growth stocks
Mutual funds investing in value stocks
Index funds
Funds investing in international stocks
Funds investing in real estate stocks
Convertible funds
Balanced mutual funds
Exchanged traded funds
Tax efficient mutual funds
Hedge funds
Funds based on market capitalization
Funds investing in bonds
Money market funds
Fund of funds

Mutual funds have certain specific features like entry load/exit load, management fees, net asset value (NAV), expense ration etc. All these features are discussed in greater detail in separate articles. Mutual funds are a great ways for investing in stock market for people who do not want to invest time and effort in researching the stocks separately.

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