Mutual funds how many are there

Some are buying mutual funds through their employee-sponsored retirement plans , while others are buying them on their own in an IRA or brokerage account. However you do it, there are plenty of good reasons to invest in mutual funds, most notably their built-in diversification.

There are four primary types of mutual funds, and there are even more if you consider the specialty funds that exist. Once you understand investing, you can start setting yourself up for financial independence. What Are Mutual Funds? A mutual fund is a pooled investment that allows you to invest in many different securities with a single investment. This means you put your money in and your money gets spread out within the stock market.

Experts agree that diversification is key to wealth building. Mutual funds come in two flavors: they are either actively or passively managed. The goal of an active mutual fund is to try and beat the stock market, so there is a lot of buying and trading going on.

A passively managed fund is a lot simpler. This keeps costs low for the investor. Most experts recommend the passive approach when investing in mutual funds. Passive funds are cheaper, and many studies have shown that active fund managers rarely beat the market over time. There are many different types of investments, investment objectives, and levels of risk.

And while all mutual funds provide diversification in a particular asset class — or across multiple asset classes — they each have a different strategy. The option of different types of mutual funds allows all investors to find that that suits their risk tolerance, financial goals , and investment preferences. Each type of fund comes with its own advantages, risk level, and downsides.

Before you invest in a mutual fund, check the fees that come with it. These are also known as an expense ratio. Anything under. The lower the expense ratio, the higher your returns will be. An equity mutual fund is also known as a stock fund and it invests entirely in corporate stocks.

Equity funds are the most popular types of mutual funds. It allows for diversification in your portfolio since you are invested in a large number of stocks. A bond fund is one that invests in debt securities issued by corporations and government entities. Some may specialize in holding just corporate bonds, others may hold only government bonds, and others may be a mix of both. Bond funds can have many different risk levels depending on the maturity of the bond, who issued it, its credit rating, and more.

Bond funds are generally considered safer than equities, which also means they often have generally lower returns. But they often earn a higher return than money market funds, which also invest in debt securities. Money market mutual funds typically invest in low-risk debt securities. The popularity of ETFs speaks to their versatility and convenience. A mutual fund will classify expenses into either annual operating fees or shareholder fees.

Annual operating fees are collectively known as the expense ratio. A fund's expense ratio is the summation of the advisory or management fee and its administrative costs. Shareholder fees, which come in the form of sales charges, commissions, and redemption fees, are paid directly by investors when purchasing or selling the funds.

Sales charges or commissions are known as "the load" of a mutual fund. When a mutual fund has a front-end load, fees are assessed when shares are purchased. For a back-end load, mutual fund fees are assessed when an investor sells his shares. Sometimes, however, an investment company offers a no-load mutual fund, which doesn't carry any commission or sales charge. These funds are distributed directly by an investment company, rather than through a secondary party. Some funds also charge fees and penalties for early withdrawals or selling the holding before a specific time has elapsed.

Also, the rise of exchange-traded funds, which have much lower fees thanks to their passive management structure, have been giving mutual funds considerable competition for investors' dollars.

Articles from financial media outlets regarding how fund expense ratios and loads can eat into rates of return have also stirred negative feelings about mutual funds. Mutual fund shares come in several classes. Their differences reflect the number and size of fees associated with them. Currently, most individual investors purchase mutual funds with A shares through a broker.

To top it off, loads on A shares vary quite a bit, which can create a conflict of interest. Financial advisors selling these products may encourage clients to buy higher-load offerings to bring in bigger commissions for themselves.

With front-end funds, the investor pays these expenses as they buy into the fund. Funds that charge management and other fees when an investor sell their holdings are classified as Class B shares.

The newest share class, developed in , consists of clean shares. Clean shares do not have front-end sales loads or annual 12b-1 fees for fund services. By standardizing fees and loads, the new classes enhance transparency for mutual fund investors and, of course, save them money. There are a variety of reasons that mutual funds have been the retail investor's vehicle of choice for decades. The overwhelming majority of money in employer-sponsored retirement plans goes into mutual funds.

Multiple mergers have equated to mutual funds over time. Diversification , or the mixing of investments and assets within a portfolio to reduce risk, is one of the advantages of investing in mutual funds. Experts advocate diversification as a way of enhancing a portfolio's returns, while reducing its risk.

Buying individual company stocks and offsetting them with industrial sector stocks, for example, offers some diversification. However, a truly diversified portfolio has securities with different capitalizations and industries and bonds with varying maturities and issuers.

Buying a mutual fund can achieve diversification cheaper and faster than by buying individual securities. Large mutual funds typically own hundreds of different stocks in many different industries. It wouldn't be practical for an investor to build this kind of a portfolio with a small amount of money. Trading on the major stock exchanges, mutual funds can be bought and sold with relative ease, making them highly liquid investments.

Also, when it comes to certain types of assets, like foreign equities or exotic commodities, mutual funds are often the most feasible way—in fact, sometimes the only way—for individual investors to participate.

Mutual funds also provide economies of scale. Buying one spares the investor of the numerous commission charges needed to create a diversified portfolio. Buying only one security at a time leads to large transaction fees, which will eat up a good chunk of the investment. The smaller denominations of mutual funds allow investors to take advantage of dollar cost averaging. Because a mutual fund buys and sells large amounts of securities at a time, its transaction costs are lower than what an individual would pay for securities transactions.

Moreover, a mutual fund, since it pools money from many smaller investors, can invest in certain assets or take larger positions than a smaller investor could.

For example, the fund may have access to IPO placements or certain structured products only available to institutional investors. A primary advantage of mutual funds is not having to pick stocks and manage investments. Instead, a professional investment manager takes care of all of this using careful research and skillful trading.

Investors purchase funds because they often do not have the time or the expertise to manage their own portfolios, or they don't have access to the same kind of information that a professional fund has. A mutual fund is a relatively inexpensive way for a small investor to get a full-time manager to make and monitor investments.

Most private, non-institutional money managers deal only with high-net-worth individuals —people with at least six figures to invest. However, mutual funds, as noted above, require much lower investment minimums. So, these funds provide a low-cost way for individual investors to experience and hopefully benefit from professional money management. Investors have the freedom to research and select from managers with a variety of styles and management goals.

For instance, a fund manager may focus on value investing, growth investing , developed markets, emerging markets, income, or macroeconomic investing, among many other styles. One manager may also oversee funds that employ several different styles.

This variety allows investors to gain exposure to not only stocks and bonds but also commodities , foreign assets, and real estate through specialized mutual funds.

Some mutual funds are even structured to profit from a falling market known as bear funds. Mutual funds provide opportunities for foreign and domestic investment that may not otherwise be directly accessible to ordinary investors. Mutual funds are subject to industry regulation that ensures accountability and fairness to investors.

Liquidity, diversification, and professional management all make mutual funds attractive options for younger, novice, and other individual investors who don't want to actively manage their money. However, no asset is perfect, and mutual funds have drawbacks too. Like many other investments without a guaranteed return, there is always the possibility that the value of your mutual fund will depreciate. Equity mutual funds experience price fluctuations, along with the stocks that make up the fund.

Of course, almost every investment carries risk. It is especially important for investors in money market funds to know that, unlike their bank counterparts, these will not be insured by the FDIC. Mutual funds pool money from thousands of investors, so every day people are putting money into the fund as well as withdrawing it. To maintain the capacity to accommodate withdrawals, funds typically have to keep a large portion of their portfolios in cash.

Having ample cash is excellent for liquidity, but money that is sitting around as cash and not working for you is not very advantageous. Mutual funds require a significant amount of their portfolios to be held in cash in order to satisfy share redemptions each day.

To maintain liquidity and the capacity to accommodate withdrawals, funds typically have to keep a larger portion of their portfolio as cash than a typical investor might. Because cash earns no return, it is often referred to as a "cash drag. Mutual funds provide investors with professional management, but it comes at a cost—those expense ratios mentioned earlier.

These fees reduce the fund's overall payout, and they're assessed to mutual fund investors regardless of the performance of the fund. As you can imagine, in years when the fund doesn't make money, these fees only magnify losses.

Creating, distributing, and running a mutual fund is an expensive undertaking. Everything from the portfolio manager's salary to the investors' quarterly statements cost money. Those expenses are passed on to the investors. Since fees vary widely from fund to fund, failing to pay attention to the fees can have negative long-term consequences.

Actively managed funds incur transaction costs that accumulate over each year. Remember, every dollar spent on fees is a dollar that is not invested to grow over time. Many mutual fund investors tend to overcomplicate matters. That is, they acquire too many funds that are highly related and, as a result, don't get the risk-reducing benefits of diversification.

These investors may have made their portfolio more exposed. At the other extreme, just because you own mutual funds doesn't mean you are automatically diversified. For example, a fund that invests only in a particular industry sector or region is still relatively risky.

In other words, it's possible to have poor returns due to too much diversification. Because mutual funds can have small holdings in many different companies, high returns from a few investments often don't make much difference on the overall return.

Dilution is also the result of a successful fund growing too big. When new money pours into funds that have had strong track records, the manager often has trouble finding suitable investments for all the new capital to be put to good use. One thing that can lead to diworsification is the fact that a fund's purpose or makeup isn't always clear.

Fund advertisements can guide investors down the wrong path. How the remaining assets are invested is up to the fund manager. A fund can, therefore, manipulate prospective investors via its title. A fund that focuses narrowly on Congolese stocks, for example, could be sold with a far-ranging title like "International High-Tech Fund.

Mutual Funds. What are mutual funds? How to buy and sell mutual funds Understanding fees Avoiding fraud Additional information Why do people buy mutual funds? Mutual funds are a popular choice among investors because they generally offer the following features: Professional Management.

The fund managers do the research for you. They select the securities and monitor the performance. This helps to lower your risk if one company fails. Most mutual funds set a relatively low dollar amount for initial investment and subsequent purchases.

Mutual fund investors can easily redeem their shares at any time, for the current net asset value NAV plus any redemption fees. Money market funds have relatively low risks. By law, they can invest only in certain high-quality, short-term investments issued by U. Bond funds have higher risks than money market funds because they typically aim to produce higher returns.

Because there are many different types of bonds, the risks and rewards of bond funds can vary dramatically. Stock funds invest in corporate stocks. Not all stock funds are the same. Some examples are: Growth funds focus on stocks that may not pay a regular dividend but have potential for above-average financial gains.

Income funds invest in stocks that pay regular dividends. Sector funds specialize in a particular industry segment. Target date funds hold a mix of stocks, bonds, and other investments. Target date funds, sometimes known as lifecycle funds, are designed for individuals with particular retirement dates in mind.

They also offer three ways to earn money: Dividend Payments. A fund may earn income from dividends on stock or interest on bonds. The fund then pays the shareholders nearly all the income, less expenses. Capital Gains Distributions.