Understanding Mutual Funds

A mutual fund is simply a collection of stocks, bonds or other securities owned by a group of investors and managed by a professional investment company. The managers of these funds diversify their holdings by buying a wide variety of investments within the stated fund category. There are three main categories of mutual funds and each one is established with a specific investment objective that fits into one of three basic goals.

The three main categories of mutual funds include Stock or Equity Funds, Bond Funds or Money Market Funds.

Every mutual fund - stock, bond or money market - is established with a specific investment objective that fits into one of three basic goals: Current Income, Future Growth, or a combination of Income and Growth.

To achieve the fund's stated objective; the fund manager invests in securities it believes will produce the desired results.

Why should you invest in a mutual fund?

• The advantage of buying a mutual fund as opposed to a single security is that you get instant diversification. This means that rather than "putting all your eggs in one basket" by purchasing the stocks or bonds of just one company or entity, investing in a mutual fund allows you to instantly purchase the securities of many companies or entities at once.

  In other words diversification is an investment strategy that offers you greater financial flexability while managing your investment risk. Diversification does not assure a profit or protect against loss in a declining market.