Other Types of Mutual Funds: Index Funds. Today, not all funds are managed by a financial manager. Index funds use a computer program to buy all of the stock in a particular index, such as the Russell 3000 or the S&P 500, regardless of how they’re performing. They don’t have to do research or try to time the movement in the market to buy or sell at the ”right” time. Index fund fees, therefore, are generally much lower than the fees for managed funds, and, therefore, the return on investment is higher.
That said, a “no-load” fund is not free. All mutual funds have internal expenses. Part of your investment dollars will help pay the fund company, the fund manager, and other fees associated with running a mutual fund. These fees will often be made transparent to you and are taken out of the assets of the mutual fund. You should always take the time to consider all the various fees and charges when investing in mutual funds.
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Investors Can Buy Many Different Types of Mutual Funds. Investment objectives are unique to every investor, which means that there are many different reasons to buy mutual funds. Fortunately, there are several categories of funds that can suit any investment need. Some of the most common investment objectives include retirement and education, each of which may require different funds to suit the needs of the investor. Target retirement funds are good examples of low-cost, diversified funds tailored to meet a variety of time horizons. This category of funds will invest in other mutual funds that combine to be suitable for a certain age range of investor. Target retirement funds are categorized by decade. For example, a 25-year old investor may expect to retire in 35 to 45 years. Therefore a fund like Vanguard Target Retirement 2050 (VFIFX) can work well in a 401(k) or IRA for this investor.
Mutual Funds Offer Transparency. Mutual fund holdings are publicly available (with some delays in reporting), which ensures that investors are getting what they pay for. Investors can also see the underlying securities (stocks, bonds, cash, or a combination of those) that the mutual fund portfolio holds. All of the information you need to know, plus some you don’t need for investing, will found in the mutual fund prospectus, which can easily be found on the mutual fund company’s website.
Flexibility: Mutual Funds Have Several Uses and Applications, All of the above benefits of mutual funds overlap into simplicity and flexibility. You can invest in just one fund or invest in a wide variety. Automatic deposit, systematic withdrawal, 401(k) plans, annuity sub-accounts, dividends, short-term savings, long-term savings, and nearly limitless investment strategies make mutual funds the best overall investment type for both beginners and advanced investors.