Mutual fund trusts are companies that pool funds from many investors and invest in securities such as stocks, bonds, and short-term debt. The combined holdings of mutual fund trusts are known as their portfolio. Investors buy shares in mutual fund trusts. Each stock represents the ownership of some of the investors in the fund and the income it generates.
Why do people buy Mutual fund Trusts?
Professional management. The fund manager will do the research for you. They select securities and monitor their performance.
Diversification or “Don’t put all the eggs in one basket.” Trustees usually invest in different companies and industries. This helps reduce the risk if one company fails.
Affordable price. Most trustees set a relatively low amount for initial mutual funds and subsequent purchases.
Liquidity. Trustee investors can easily redeem their shares at any time by paying a redemption fee in addition to their current net asset value (NAV).
What are the types of mutual fund trusts?
Types:
- Money market funds have relatively low risk. By law, you can only invest in certain high-quality short-term mutual funds issued by US companies, federal, state, and local governments.
- Bond funds are usually riskier than money market funds because they aim to generate higher returns.
- Stock funds invest in corporate stocks. Not all equity funds are the same. Here are some examples:
- Growth funds are focused on stocks that may not pay regular dividends
- Income funds invest in stocks that pay dividends on a regular basis.
- Index funds track specific market indexes such as the Standard & Poor ’s 500 Index.
- Sector funds specialize in specific industry segments.
- Target Date Funds hold a combination of equities, bonds, and other mutual funds. Over time, the mix will gradually change according to the fund’s strategy.