Mutual Funds

What is a mutual fund??

A mutual fund is a smart investment fund that offers investors the opportunity to invest their money to buy stocks, bonds and short-term debt. The combined holdings of the mutual fund are known as its portfolio. As a mutual fund investor, you don’t directly own the stock in the companies the fund purchases but share equally in the profits or losses of the fund’s total holdings – another reason they’re called “mutual funds.”

How do mutual funds work?
Actively Managed Funds:
• Opportunity to overperform – offers potential to earn higher returns than average.
• Defensive measures - minimize potential losses by avoiding certain securities, or by adding more conservative assets.
• Tax management – can tailor tax strategies.
Passively managed funds:
• Low fees
• Transparency
• Tax efficiency

Why do people buy mutual funds?

Mutual funds are a popular choice among investors because they generally offer the following features:

Professional Management:

• researching of the product
• selecting the securities
• monitoring the performance

Diversification:

• invest in multiple companies & industries
• lower risks, if one company fails

Affordability:

• low amount required for initial investment and subsequent purchases

Liquidity:

• Easily redeemable at any time
• current net asset value (NAV) plus any redemption fees

What types of mutual funds are there?

Most mutual funds fall into one of four main categories—
• money market funds
• bond funds
• stock funds
• target date funds
Each type has different features, risks, and rewards.
• Dividend Payments: all the earned income from dividends on stock/interest/bonds by funds are paid to the shareholders
• Capital Gains Distributions: at year end, the capital gains are distributed (minus the capital losses) to the investors
• Increased NAV: value of the fund and its shares increases with the market value of the portfolio

Why invest in mutual funds?

• Diversification
an efficient way to diversity your portfolio without having to select individual stocks or bonds
• Professional management
extensive knowledgeable fund managers help in making investment decisions, adjustment of the portfolio on basis of market conditions
A manager may adjust the portfolio mix based on changes in market conditions or a company's performance to help the fund achieve its stated objective.
• Convenience
buy or sell fund shares at any time, automatically reinvest the dividends and capital gains distributions and exchange funds within a fund family without fees
• Transparency
Ensures accountability and fairness; can see the underlying investments (stocks, bonds, cash, etc.) in each fund’s portfolio – either online or via the fund’s prospectus

Our take on mutual funds

There are nearly 10,000 mutual funds available today, covering a broad range of industries, asset classes and market indexes. At HM Associates, we try to simplify your choices by recommending funds that follow our investing principles of quality, diversification and long-term perspective.