What Are Mutual Funds Essay Research Paper — страница 2

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A mutual fund has a board of directors to make major policy decisions and oversee management. These are important people. The directors steer the fund’s course, determining investment objectives and hiring out help. The Shareholder Mutual fund investors are also known as shareholders. When you invest in a mutual fund, you actually buy a share or portion of a mutual fund. Each share has a price tag. If a fund sells for $10 a share and you invest $1,000, you’re the proud owner of 100 shares of the fund! Mutual funds, like many other companies, are very democratic. Because you own shares in the fund, you have voting rights. As part owner, a shareholder gets to vote in the election of the board of directors. The shareholder must approve many operational changes within the fund,

including accounting procedures and the investment objective. Custodians and Transfer Agents As you can imagine, the millions of mutual fund transactions executed each year require a gargantuan behind-the-scenes record-keeping effort. The securities a mutual fund invests in are kept under lock and key by an appointed custodian, usually a bank. The custodian may respond only to instructions from fund officers responsible for dealing with the custodian. The custodian safeguards the fund’s assets, makes payments for the fund’s securities, and receives payments when securities are sold. Fund transfer agents maintain shareholder account records, including purchases, sales, and account balances. They also authorize the payments made by the custodian (referred to previously),

prepare and mail account statements, maintain a customer service department to respond to account inquiries, and provide federal income tax information, shareholder notices, and confirmation statements. The Underwriter The underwriter is an organization with a staff of salespeople who either administers sales directly to the public or meets with the brokerage firms to convince them to sell the fund. Brokers sell fund shares to the public and collect a commission for the sale. Chapter 8 goes into more detail about what you pay for a mutual fund and who sells them. Mutual Funds Make It EZ to Invest Boy, there are a lot of important people and ingredients that go into the making of a mutual fund. The end result, however, is that mutual funds provide one of the simplest ways to

invest — especially if you count yourself among us working stiffs, and lack time and training to manage money like the Wall Street big boys. The major difference between investing in a mutual fund and investing in an individual stock or bond is that with a mutual fund, instead of buying just one stock or bond, you really buy a portion of a variety of investments. Exactly how much money you make or lose in a mutual fund can change daily, as you’ll learn in later chapters. It all depends on how many shares you own and how well your mix of investments perform. As Chapter 3 explains, owning a lot of different investments helps to protect you against losing money. If one investment in your mutual fund does poorly, you have a number of others to cushion the blow. Sidelines: There

are approximately 6,000 mutual funds, but not all are alike. Depending on your particular needs, you can find a mutual fund that’s right for you. In Chapters 3 and 5, you’ll learn more about the different types of mutual funds. The 10 Commandments Of Mutual Fund Investing Have we whetted your appetite? Good. Let’s get ready to proceed. However, we don’t want you to invest one penny in a mutual fund until you read and thoroughly digest these 10 critical rules of mutual fund investing. 1.Always understand what you are investing in. You can lose a bundle if you pick the wrong kind of mutual fund. Read carefully the free literature that mutual fund companies provide on their funds. 2.Don’t rush out and buy the first mutual fund that looks good. You first have to identify

your investment goals, determine how much you need from your investment (see Chapter 2), and figure out how much you’re willing to risk losing (see Chapter 6). 3.Don’t try to make quick profits. Always invest for the long term. You should plan to keep some of your mutual funds an absolute minimum of 5 to 10 years. 4.Mix up your investments. You can cut your chances of losing money by putting your money in different types of investments. Chapter 6 shows you how. 5.Invest regularly with each paycheck — before you have a chance to spend all your money. Mutual funds have automatic investment programs. Money is electronically taken out of your checking account and invested in the fund. 6.Do your homework. Once you determined how much money you need and by when — as well as how