Understanding Mutual Funds

The theory from which mutual funds were developed is to enter into an investment that is diversified, liquid, low-cost, and competently managed for the individual investor.

The concept of mutual fund was initially developed during the 1800s in Europe whereas in the U.S., the first mutual fund in 1924 was introduced by a pioneering company in Boston, the center of the universe for mutual funds at present. Mutual funds publicly available earnestly began spreading in 1928, and the 1960s and 1970s have made mutual funds to significantly grow as the stock market was again becoming full of investors.

Fixed rates investments such as CDs (certificates of deposit), including those sold by banks, are not the same as mutual funds. In the case of a CD buyer, he or she is given a specific rate of return by a certain date, but mutual funds work on the contrary. The price of mutual funds can go up and down every day and it is possible for an investor to lose the principal. You must be clear that mutual funds, including the money market mutual funds sold by banks, are not insured by the federal government. Interest bearing “money market accounts” which are bank deposits insured by the FDIC should not be confused with money market mutual funds.

To be perfectly clear about mutual funds, always do comparison-shop, ask to be clarified regarding unfamiliar terms and abbreviations, know all associated charges and fees, be knowledgeable of “breakpoint selling,” and be aware of mutual funds that are sponsored by brokerage firms themselves, making “proprietary products” non-transferable to other firms.