Do you know what mutual funds are and why it may be a good idea to use them? Learn about managed mutual funds and how you can use them to help boost your earned returns on investments.
How Much Do You Know about Managed Mutual Funds?
A mutual fund is often considered by investors who are seeking the benefits of a diversified portfolio but who may not have to time to manage it. A mutual fund essentially pools funds from various investors to collectively invest in a group of assets. While some mutual funds may focus on investing in a single asset class, others may invest in multiple classes.
Mutual fund shares get purchased directly from the fund itself or through a broker. Mutual funds can also create new shares that can be sold to new investors. Further, because you purchase shares from the mutual fund directly, they can be redeemed or sold back to the mutual fund at any time.
Kinds of mutual funds
There are four kinds of managed mutual funds to invest in:
- Money Market Funds are thought to carry the lowest returns with the most moderate risk.
- Bond Funds, also called Fixed-Income Funds, aren’t as restrictive when it comes to the quality of the investment, and there are a variety of bonds to choose from. Research each mutual fund individually to determine the amount of risk associated with it.
- Stock Funds, also known as Equity, carries the most significant risk but also the highest potential returns. Nevertheless, market fluctuations can drastically affect the profits of equity investments, depending on the type of equity fund is invested in.
- Hybrid Funds tend to invest in an array of classes, including securities, bonds, and stocks.
The difference between passive vs. active mutual fund management
Regardless of what kind of mutual fund you decide to invest in, the fees and returns you see will be dependent upon whether you manage your mutual fund passively or actively. Passively managed funds offer security in the sense that funds are invested according to a pre-determined strategy that does not require much management and carries with it fewer fees.
Alternately, actively managed funds are managed with the intent to seek to outperform market indices; thus bringing the potential for higher returns than passively managed mutual funds. Nevertheless, they will also carry greater fees and higher risks as well.
Why investors turn to managed mutual funds
When it comes to investing, diversification of cash flow is one of the most important principles of prosperity; managed mutual funds allow investors to access a diverse portfolio of assets without the headache of monitoring dozens of individual assets every day. For some investors, the simplicity of managed mutual funds is also appealing, especially if they don’t have time to monitor a diverse portfolio.