5 Helpful Tips to Identify Mutual Funds

Mutual funds are professionally managed funds and are a popular method of investing, particularly with investors with smaller sums of money. But how do you identify mutual funds from other investments? Here are some tips to get you started.

1. Funds are pooled with other investors. This is the key to mutual funds which are in fact managed funds. The professional managers invest the pooled funds on behalf of investors. Rather than buying a number of shares as when investing in stocks your money purchases a number of units. In this way small sums of money can be invested in a number of different assets, giving you diversification without the need for large sum of money.
2. Professionally managed. As already noted the funds are professionally managed by people who are trained in the area of investing. They have the resources and skills to manage your funds on your behalf. This is the manager's job so they are working daily leaving you to concentrate on things that you enjoy doing. They have constant contact with the markets. This does not mean that all fund-mangers are the best but there are things you can do to check how respected the funds and the managers are through research houses such as Morningstar. Your financial adviser can also help you here.Read the prospectus of the company to find out how disciplined the company is and how it adheres to the strategy that it states.
3. A prospectus is available. A prospectus is a legal document that is approved by the country's Security Commission and shows areas that the mutual fund is allowed to invest in, such as shares and bonds. It provides details of all financial matters relating to the investment option. In New Zealand, apart from the prospectus, you must be supplied with an Investment Statement which has certain questions answered in plain terms rather than investment jargon.
4. Most funds are administered by a board of directors and many have trustees who oversee the management of the funds, making sure they are appropriately managed and invested in terms of the investment strategies of the funds. The funds are subject to specific regulatory, accounting and tax rules.
5. The funds' investment objectives define the type of securities in which the fund will invest. There are a range of different types of funds and these can be listed equities or stocks, bonds or fixed interest, cash or money markets. There can be a combination of all asset classes as well, providing true diversification for investors.