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The world of finance has its own special language. Words like bears and bulls, accruals, kurtosis, and teenyo mean nothing to most people. These specialized industry words are known to only select few and may never see the light of day outside financial circles. Sometimes the words leak out and have meaning for us all. We know about loans and equity, but what is a mutual fund?
They are a long-term collective investment that collects many investors together to buy various stocks, bonds and other financial securities. There is a board of directors and fund manager that oversees the mutual fund to ensure it is giving proper returns to the investors and making appropriate trades (buying and selling) when it is not. The investors pay part of the returns to the manager and board for expenses and to act on their behalf and steer the mutual funds toward greater returns. Like any investment, there are no guarantees and some do lose money.
Mutual funds allow people who often don’t have enough income to invest as individuals to buy the more expensive stocks and securities. Combined as a group these individuals have more investing options and can take part in more diverse and lucrative finances. Mutual funds are overseen by the US Government but not insured by them.
Mutual funds give people many more options with their personal finances than investing alone.