What are mutual funds?

What are mutual funds? Mutual Funds

Mutual funds, also known as Mutual Funds in English, are financial products second only to stocks (Stock) among financial investment and wealth management products. Mutual funds are different from ETFs. Mutual funds are generally managed by fund managers and you generally need to purchase them at an investment company.

ETFs are funds that can be traded similar to stocks and can be traded by yourself using any broker. Mutual funds are funds that raise funds based on trust in investment institutions and are often subject to strong supervision. Generally speaking, the risks are relatively small.

They are favored by most stable investors and are also a reasonable choice for beginners to try. What do you need to know about mutual funds? A mutual fund is a financial investment product that is based on the professional knowledge of the fund manager and its professional team with credibility.

It is issued by the fund company and publicly raises funds from social investors. After raising the funds, it is invested in the securities market and invests in stocks, bonds, commercial papers or financial derivatives to obtain interest, dividends and capital gains. Mutual funds are managed by professional financial practitioners, known as fund managers.

Since mutual funds are invested by the public out of trust in financial institutions, there is some possibility of deliberate fraud, so governments of various countries implement relatively strict management of mutual funds.

The United States is the most stringent country, with strict legal controls on the formation, information disclosure, transactions, changes in capital structure, and dissolution of mutual funds. What are the categories of mutual funds?

Depending on the types of securities in which the portfolio is invested, mutual funds mainly include: stock funds, bond funds, money market funds, balanced funds, index funds, and other types of funds. 1. Equity Funds Stock funds invest in a range of listed company stocks.

The vast majority of mutual funds currently on the market are stock funds in various industries or across industries. Stock funds tend to move with the stock market and certainly have greater growth potential. Stock funds can be divided into different categories based on different types of stocks.

According to company size Large-cap funds: The market value of listed companies exceeds US$10 billion; Mid-cap funds: listed companies with market capitalizations between US$2 billion and US$10 billion; Small-cap funds: listed companies with a market capitalization between US$300 million and US$2 billion; According to industry or sector Some investors will

tend to invest in company stocks in specific fields based on their own circumstances, such as oil, gas, energy, healthcare, technology, etc. growth and value When stocks are chosen for investment in the belief that investment returns will be above average, such funds are called growth funds.

When stocks of companies that are believed to be undervalued by the market are selected, such funds are called value funds.

different areas of investment When investing in companies in countries other than the United States, it is called an international fund; when investing in companies in multiple countries, including the United States, it is called a global fund; when investing in companies in countries with smaller markets but good growth trends, it is called an emerging market fund.

2. Bond funds Bonds have fixed-income characteristics, so bond funds are also fixed-income mutual funds. It is the largest mutual fund on the market after stock funds and is the most popular fund type among conservative investors. This type of fund invests in government and corporate debt, with stable returns but less growth potential than stock funds. 3.

Money market funds The investment objects of this type of fund include short-term debt such as U.S. Treasury bills and commercial paper. Like bond funds, they are low-risk funds and currently account for about 15% of the fund market. Such funds do not generate very high returns, but they are usually higher than interest on bank deposits. 4.

Balanced funds Balanced funds, also known as asset allocation funds, invest in a mix of assets, including stocks, bonds, money markets or other investments. The main purpose is to reduce risk by diversifying investments across categories.

It can be mainly divided into dynamic proportion and fixed proportion according to whether the proportion of investment objects is fixed or not.

Dynamic proportion: This means that investors will reserve a certain amount of floating space for each investment object, and then adjust the proportion at any time according to market conditions to obtain higher returns. Of course, the risks will also change accordingly.

Fixed proportion: The proportion of each category in the investment object is always fixed, for example, 60% stocks and 40% bonds are invested.

Target-date funds, which are most familiar to retirees, automatically reallocate investment proportions closer to the investor's retirement, increasing the proportion of bonds to increase the security of retirement funds. 5.

Index Funds The fund manager of this type of fund will buy stocks corresponding to major market indexes such as the S&P 500 Index or the Dow Jones Industrial Average. It is a passive investment strategy fund.

Because it eliminates the fees paid to the manager during the active management process, the return rate is often better than that of the active investment strategy fund. It is similar to a stock fund and will vary depending on the size of the company and industry it invests in. 6.

Other funds In addition to these popular funds, there are currently socially responsible funds – which only invest in companies that meet certain guidelines or belief standards – Specialty funds – which include real estate investment trusts, etc. – and even funds of funds – mutual funds (which invest in other mutual funds).

What are the characteristics of mutual funds? 1. Diversification of investment objects Mutual funds have no specific investments and allow fund managers to mix investments within a portfolio to increase portfolio returns while reducing risk.

Mutual funds are diversified in that a portfolio can hold hundreds of different stock securities across different sectors and industries, as well as bonds of varying maturities and issuers. Buying mutual funds allows you to diversify your investments more cheaply and quickly than buying individual securities. 2.

Easy to enter investment Mutual funds can be traded on major stock exchanges with relative ease, making them highly liquid financial investments. Common brokers include Charles Schwab, E-Trade Financial, TD Ameritrade, etc.

In addition, for certain types of assets, such as foreign stocks or unpopular derivatives, mutual funds are often the most viable, and sometimes the only, way for individual investors to participate in investing. 3.

Low-cost large-scale investment Investors incur large transaction fees when purchasing multiple securities individually, and pay large commissions when creating a diversified portfolio on their own, thereby losing a large portion of the initial investment amount.

And if an investor only has $100 or $200, it's usually not enough to buy a large amount of stocks. Then, mutual funds allow investors to purchase a variety of investment products with a smaller amount.

This is because mutual funds buy and sell large quantities of securities at once, which makes their transaction costs lower than what an individual would pay when trading securities. 4.

Assets are professionally managed A major advantage of mutual funds is that investors do not have to pick underlying assets and manage investments, but rather have highly professional investment managers handle everything through careful research and skillful trading.

For smaller investors, they often don't have the time or expertise to manage their own portfolios or have access to the same kind of information that professional funds have. As a result, mutual funds have become a low-cost but very professional investment management assistance. 5.

Transactions are highly regulated Mutual funds are funded based on investors' recognition of the credibility of the institution. As a result, the funds are subject to arguably the most stringent supervision and constraints in the financial industry to ensure fairness and security for investors. 6.

Diversity of fees during transactions The entry fee for mutual funds is not high, but there are many types of fees involved in the transaction process, and these fees are also a criterion for investors when choosing fund companies. What are the fees for mutual funds?

The various non-investment expenses incurred during the investment process are investment costs. In mutual fund investment, there are two main types of expenses: Annual fund operating fee shareholder fees

There is no industry standard value for these two fees. Different fund companies will have different proportions, and the difference in fee structure will directly affect the final investment return. A. Annual fund operating fees Annual fund operating expenses are Annual fund operating expenses in English.

These expenses will continue to exist as the investment progresses and are essential. These mainly include management fees, 12b-1 fees and other fees. This fee accounts for approximately 0.25% to 1.5% of the total annual fund investment. ETFs, which are similar to mutual funds, charge much lower fees in this regard, usually around 0.25%.

Management fees Paid to fund managers and investment advisors to manage and run their own investment accounts. 12b-1 Fees It is a mutual fund’s annual marketing and distribution operating expenses, capped at 1%.

Other expenses Including custody fees, legal fees, accounting fees, transfer agency fees and other administrative fees during the investment process. B. Shareholder fees It mainly includes sales fees, redemption fees, exchange fees, account fees and purchase fees, which are one-time fees paid during the purchase or sale of fund shares.

Sales loads Commissions paid to brokers when buying or selling fund shares also become loads. According to the time of payment, it can be divided into "front-end load" and "back-end load". The front-end load is paid when buying stocks. This fee will occupy the investor's investment funds.

For example, if an investor wants to invest $1,000 to purchase stocks, and the front-end load is $10, then the investor actually only buys $990 of stocks. The backend load is the fee paid when the stock is sold. Some funds and brokers agree not to charge investors sales load fees.

Such funds are called "no-load funds." Redemption fee If investors sell shares within a short period of time after purchasing them, the fund company may charge a redemption fee. According to FINRA, this period of time could include "anywhere from a few days to more than a year," depending on the fine print of the fund company's contract.

Exchange fee Fund companies charge investors this fee when they exchange or transfer their shares into another fund offered by the same investment company. Account fee If the fund company sets a minimum account amount for investors, when the investor's balance is lower than this specified value, the account fee will be paid.

Purchase fee The fee paid to the fund company when fund shares are purchased is distinguished from the sales load fee paid to the broker. How do mutual funds work?

When investors want to invest, but don’t know the investment methods, don’t understand the tricks, and don’t have enough funds to try in many fields, they will pool their funds into a trustworthy company called a mutual fund and obtain a share of the company. The fund company then invests in various fields on its behalf.

Depending on the amount of funds raised, it can make long-term, short-term, single-industry and cross-industry investments in various combinations. The income obtained is paid to investors in the form of distribution. Investors can also sell their shares back to the company and redeem their investments when they want to stop trading.

In this process, investors are freed from the professional and cumbersome operations of various data analysis, value comparisons, etc. of their own investments, as well as some of the risks and transaction expenses of independent investments. A fund company is an actual company.

Unlike companies in other industries, the operating business of this type of company is financial investment. After investors inject capital to purchase, they obtain partial ownership of the company and its assets and become shareholders.

The shareholders elect the CEO, who is the fund manager, and the fund manager is obliged to work in the best interest of all shareholders. Most mutual funds are affiliated with a larger investment company, such as the famous Fidelity Investments, The Vanguard Group, etc., which manage dozens or even hundreds of independent mutual funds.

How risky are mutual funds? The strictest supervision does not mean 100% returns. There are also many risks in the fund trading process. uncertain returns Every investment carries risks, and mutual funds can decrease in value. Fund shares are also affected by market fluctuations.

It's also important to note that money funds, unlike bank funds, are not covered by mutual fund stock insurance from the FDIC - Federal Deposit Insurance Corporation. cash drag This is mainly reflected in open-end funds.

People are investing and withdrawing funds from the fund every day, so most investment portfolios must retain a certain amount of cash to meet daily stock redemptions, and this cash has no income, so this situation is called "cash drag." high cost Mutual funds offer investors extremely professional management, but this comes with fees.

Just like the various fees mentioned above in the transaction process, some of these fees directly reduce the actual investment amount, and some reduce the investment return. No matter which one, they are regarded as the cost of mutual fund investment and borne by the investor.

When mutual fund returns are less than ideal, these costs can turn a seemingly profitable investment into a loss.

lack of liquidity Mutual funds allow investors to request that their shares be converted into cash at any time, but unlike stocks that trade throughout the day, redemptions from many mutual funds only occur at the end of each trading day, which results in certain restrictions on the liquidity of funds.

Assessment data is inaccurate For mutual funds, it can be difficult to accurately research and compare investment returns. Mutual fund net asset values can provide some basic data analysis, but given the diversity of investment portfolios, it is difficult to make precise comparisons even among funds with similar names or similar stated goals.

Only index funds that consistently track the same market are truly comparable. How are mutual funds traded? In the past, mutual funds could only be bought and sold through financial professionals. With the development of online trading platforms, investors are now allowed to trade mutual funds online themselves.

When deciding to start investing in mutual funds, investors can choose to buy directly on the fund company's website or buy on a third-party trading platform. Fund company This is the most direct and relatively cost-effective transaction method, but may be limited by the number of fund investment objects.

Investors enter the fund company's trading website, open a personal account, transfer funds, and purchase target funds to obtain company equity based on the fund analysis given by the fund company.

Most fund companies, such as American Century, Dodge & Cox, etc., only allow investors to purchase their own company's fund products, but there are currently some companies, such as Vanguard Group and Fidelity Investments, that support investors to purchase other companies' fund products or ETF products through them after paying some fees.

Third-party trading platform This is a more common and traditional investment method. Trading on a third-party trading platform not only allows investors to invest in a variety of financial investment products other than mutual funds, but can also obtain more investment data analysis to keep up with market dynamics and conduct reasonable asset allocation.

However, such operations will incur high costs, including transaction fees, commissions, etc. Investors open online accounts on third-party trading platforms, transfer funds, and then purchase products provided by the platform. The current mainstream third-party trading platforms include: Interactive Broker, Robinhood, Futu moomoo, etc.

Introduction to more brokers: Ranking and comparison of U.S. brokers How to make money with mutual funds? Investors, that is, shareholders of fund companies, can obtain returns from three aspects after injecting capital to purchase equity: Dividend Investors can receive dividends from the fund's shares and interest from bonds held in the fund's portfolio.

The Fund pays out substantially all of the income it receives during a year to investors in the form of distributions. The foundation provides investors with a check on earnings or allows investors to reinvest the earnings to acquire more shares. Capital Gain

If the Fund sells securities that increase in price, it will receive a capital gain. The fund company will pay these earnings to investors in the form of distributions.

Net Asset Value If the price of the securities in which the fund invests rises but the fund manager does not sell them, the price of the corresponding fund shares, also known as Net Asset Value, will rise. Investors can then sell their mutual fund shares at a profit. Introduction to Several U.S.

Mutual Funds Federated Hermes Corp Bond Strategy Port (FCSPX) This mutual fund invests primarily in a diversified portfolio of fixed-income securities across large corporations. As of May 31, 2021, the one-year yield is 6.28%, the three-year yield is 8.38%, the five-year yield is 6.39%, and the ten-year yield is 5.64%.

Fidelity Select Medical Technology & Devices Portfolio (FSMEX) The fund tracks the MSCI U.S. IMI Healthcare Equipment & Supplies 25/50 Index, which is modified to reflect the performance of companies in the industry. The fund is intended for investors seeking exposure to specific industries.

Requires initial investment of $2,500 It has returned 35.35% over the past year, 22.41% over the past three years, 22.16% over the past five years, and 18.28% over the past ten years.

Putnam Global Technology Fund (PGTAX) The fund invests primarily in common stocks of large and mid-cap global companies that the fund manager believes have good investment potential, primarily growth stocks or value stocks or both.

Under normal circumstances, at least 80% of the net assets of the funds will be invested in securities of companies in the technology industry. The fund is non-diversified. The fund has returned 90.21% over the past year, 31.39% over the past three years, 32.12% over the past five years, and 20.45% over the past ten years.

Bridge Builder Large Cap Value Fund (BBVLX) The investment is designed to provide capital appreciation. Under normal market conditions, the Fund will invest at least 80% of its net assets in securities and other instruments of large capitalization companies, and it may also invest in American Depository Receipts (ADRs) or Global Depository Receipts (GDRs).

The fund has returned 65.43% over the past year, 14.00% over the past three years, and 13.70% over the past five years. PIMCO Long-Term Credit Bond Fund (PTCIX) The investment seeks total returns in excess of its benchmark, consistent with capital preservation and prudent investment management.

The Fund typically invests at least 80% of its assets in fixed income instruments of varying maturities, a portfolio of which may be represented by forwards or derivatives such as options, futures contracts. The fund has returned 9.84% over the past year, 7.86% over the past three years, 7.63% over the past five years, and 8.44% over the past ten years.

Holbrook Income Fund This is a short-term fund. The fund is designed to provide immediate income with the secondary objective of preserving capital in a rising interest rate environment. The Fund generally invests at least 80% of its net assets in a diversified portfolio of fixed income instruments.

It allocates up to 100% of its portfolio to fixed-income securities, either through direct investments or through purchases of closed-end mutual funds and ETFs that invest primarily in income-producing securities. The manager may also allocate up to 50% of the fund's assets to the common and preferred shares of the underlying fund.

The fund has returned 32.41% over the past year and 6.46% over the past three years. The difference between mutual funds and hedge funds Mutual funds and hedge funds are often confused by people, but there are some clear differences between them: 1. Different investor qualification requirements mutual funds

Mutual funds generally do not have clear investor capital requirements, and only a few funds may have certain minimum capital requirements. hedge funds Hedge fund investors have strict qualification restrictions. U.S.

securities laws stipulate that: to participate in the name of an individual, the individual’s annual income in the past two years must be at least US$200,000; to participate in the name of a family, the couple’s income in the past two years must be at least US$300,000; to participate in the name of an institution, the net assets must be at least US$1 million.

2. Different investment operations The actual investment operations of mutual funds are subject to many restrictions and regulations, which makes them more secure than some investment products and more suitable for junior investors. The operations of hedge funds are unrestricted, and there are few restrictions on investment portfolios and transactions.

The main partners and managers can freely and flexibly use various investment techniques, including short selling, derivatives trading and leverage. This makes them lose their original hedging role and instead have great risks. 3.

Different supervision levels It is subject to relatively strict supervision, because most investors are ordinary people, and many people lack the necessary understanding of the market. In order to avoid public risks, protect the weak, and ensure social security, strict supervision is implemented. Hedge funds are currently unregulated. The U.S.

Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment Company Act of 1940 have stipulated that institutions with less than 100 investors do not need to register with financial authorities such as the U.S. Securities and Exchange Commission when they are established, and are exempt from regulation.

Because investors are mainly a small number of very sophisticated and wealthy individuals with strong

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