MONEY MATTERS: Mutual Funds
What is a mutual fund and how does it work?
It's a very popular term today. Mutual Funds have actually been around since the thirties. I think American Fund has started in 1934-35. Really what a Mutual Fund is, say you want to be invested in the stock market, which prudent to be diversified and have a variety of different stocks. Don't put all you eggs in one basket. To do that, most people don't have the money, time, or expertise to do that. So, what a Mutual Fund is really a company where a bunch of investors putting their money in a pool and there's a money manager and they have all different types of funds. Some can be growth orientated, it can be a bond fund, it can be a balanced fund and the managers buy stocks or bonds on your behalf. And so by doing that you're getting diversification and you get professional management and in most cases mutual fund allow you to get in with a very small dollar amount. Some you can open for twenty five dollars a month, fifty bucks a month.
Now some of them of know there are fees and those fees can vary from fairly high to almost no fees.
That is correct. There's no load funds institutional funds. Even though one mutual fund might have the same name but it might be an a share verse and i share. An i share is institutional usually you get that inside your 401k or a large account and an a share will come in with a front end low. Generally and that depends on the mutual fund family will vary from how much you money you put in up to about four and half to five percent.
Now a front end loan means if i understand it right you're paying money right off the bat right up the front just for the privilege to get in.
That is correct so if a person pouts in a thousand dollars in a mutual fund that's front end loaded, let's say its four percent that's deducted right off the top. Otherwise it's called back end load if you pay afterwards.And back end loads are getting rare. There use to be b shares when i started there was a five year deferred end surrender charge. But they're almost gone and there's c shares where there's a one percent surrender charge there being fazed out.