Importance of Mutual Funds

Mutual funds offer inexperienced and experienced investors---who may not have a lot of money to invest---the ability to invest in more than just one investment tool without having to monitor or manage that investment personally and at a reduced risk.

Benefit

A mutual fund reduces an investor's risk two ways: through diversification in companies and diversification in business fields. By purchasing a combination of stocks, bonds and other securities--rather than just one single stock purchase--their risk is spread out over many fields and companies, instead of just one.

Experienced Management

Purchasing into a mutual fund automatically provides the investor with an experienced investment manager to oversee their investment. This is because the mutual fund is composed of different investment securities and requires a competent professional to oversee it from the onset.

Types

There are no-load mutual funds, mutual fund loads and closed-end funds. No-load mutual funds don't cost the investor a sales or commission fee. Mutual fund loads do have a fee. And closed-end funds can have sales fees and management fees.

Types of Mutual Fund Loads

Mutual fund loads, as a category, are further broken down into four types: Front-end loads, back-end loads, purchase fees and redemption fees. All four incur fees but at different times during the investment transaction. Front-end loads and purchase fees require fee payment at the beginning of the transaction/purchase. Back-end loads and redemption fees are part of the sale process.

Fees

Paying a significant transaction fee at the time of purchase of a mutual fund causes the investor to start off with a "loss" in his investment. No-load mutual funds do not have this upfront fee, however.

References

• Money-zine.com: Mutual Funds for Dummies
• Money-zine.com: No Load Mutual Funds
• Money-zine.com: Closed End Funds