Investment Companies, or mutual funds as they are commonly known, provide investors with a simple and low-cost way to participate in a wide variety of investments. Mutual funds pool investor’s money and invest it as prescribed by their charter and detailed in their prospectus. While investment in mutual funds can be very financially rewarding, participation does involve risk and can result in loss of principal.
The investment in a mutual fund is accomplished through the purchase of shares in the investment company. These shares represent an ownership interest in the investments that comprise the assets of the mutual fund. How these shares are created and purchased define one of the main differentiators between the three main types of mutual funds: open end, closed end and exchange-traded funds. An open end mutual fund creates new shares every time a new investment is made in the fund. Assets are priced daily to determine a net asset value at which to create new shares or to buy back redeemed shares.
A closed end fund issues a limited number of shares at an initial public offering. The proceeds from the offering are invested and a net asset value is determined on a regular basis. However, the shares of the company are freely traded on a stock exchange where the price is determined by the auction process. This can create a disconnect, where the balance or supply (sellers of shares) and demand (buyers of shares) can cause the traded value of shares to vary from the net asset value of each share. Occasionally, shares will trade at premiums to net asset values or discounts to net asset value. Each occurrence can present an astute investor with an opportunity.
Mutual funds are beneficial to investors, as they provide diversification, professional investment management, automatic investment options, and the ability to participate in broad or specific sectors, not easily recreated by smaller investors. The purchase of a share of a mutual fund represents the ownership of a pool of investments. The characteristics of a broader range of investments may provide a better experience for the investor over the investment in a concentrated portfolio. The professional investment management of funds can help improve the investor experience as the team of managers carefully choose and monitor investments on behalf of their shareholders.
Open end mutual funds offer investors the ability to automatically invest funds on a regular basis. This low cost, systematic program can provide a great way to build an investment portfolio. The number and variety of mutual funds provide investors with multiple dynamic methodologies to build their investment portfolio. From less volatile programs that seek to preserve principle and provide income to investment strategies that seek large gains at the risk of experiencing large swings in value, mutual funds have a vehicle for your investment need. A portfolio can be comprised of one mutual fund that invests in a broad range of investments or a portfolio can be comprised of multiple mutual funds, each providing unique risk and return characteristics that can be blended to meet investment goals.
At RSA, our investment professionals can help you build an investment portfolio of mutual funds that will meet your individual returns needs while keeping within your risk preferences. Our professionals can help with selection of funds, the building of your portfolio and the development of a program to meet your investment goals. We represent the major investment houses and offer a variety of mutual funds, including domestic, international, and emerging market stock funds, domestic and international bond funds and many other specialty funds.