Mutual funds are an attractive method of investing for some. A mutual fund is
a company that brings together money from many people and invests it in stocks,
bonds, or other securities. The combined holdings of stocks, bonds, or other
securities and assets the fund owns are known as its portfolio. Each investor
owns shares, which represent a part of these holdings.
Investors in mutual funds prefer them because:
-- Mutual funds are managed by professional money managers.
-- By owning shares in a mutual fund instead of buying individual stocks or
bonds directly, your investment risk is spread out.
-- Because your mutual fund buys and sells large amounts of securities at a
time, its costs are often lower than what you would pay on your own.
You take risks when you invest in any mutual fund. You may lose some or all
of the money you invest, because the securities held by a fund go up and down in
value. What you earn on your investment also may go up or down. Be aware that:
-- Mutual funds are NOT guaranteed or insured by any bank or government
agency. Even if you buy through a bank and the fund carries the bank's name,
there is no guarantee. You can lose money.
-- Mutual funds ALWAYS carry investment risks. Some types carry more risk
-- Understand that a higher rate of return typically involves a higher risk
-- Past performance is not a reliable indicator of future performance. Beware
of dazzling performance claims.
-- ALL mutual funds have costs that lower your investment returns.
-- You can buy some mutual funds by contacting them directly. Others are sold
mainly through brokers, banks, financial planners, or insurance agents. If you
buy through these financial professionals, you generally will pay an extra sales
charge for the benefit of their advice.
-- Shop around. Compare a mutual fund with others of the same type before you
The three main categories of mutual funds are money market funds, bond funds,
and stock funds. There are a variety of types within each category.
There are sources of information that you should consult before you invest in
mutual funds. The most important of these is the prospectus of any fund you are
considering. The prospectus is the fund's selling document and contains
information about costs, risks, past performance, and the fund's investment
goals. Request a prospectus from a fund, or from a financial professional if you
are using one. Read the prospectus before you invest.
You can buy some mutual funds by contacting them directly. Others are sold
mainly through brokers, banks, financial planners, or insurance agents. All
mutual funds will redeem (buy back) your shares on any business day and must
send you the payment within seven days. Before you buy a mutual fund, make sure
it is right for you.
Before you invest, decide whether the goals and risks of any fund you are
considering are a good fit for you. To make this decision, you may need the help
of a financial adviser. There are also investment books and services to guide