Stocks and Mutual Funds - Mutual Fund Benefits and Types


Mutual Fund Benefits

Mutual funds offer the following advantages to investors:

  • Diversification - investing in mutual funds reduces risk in a portfolio, since the investor is able to own a proportional share of the many securities in each fund.

  • Professional management - each mutual fund has a full-time portfolio manager, who can devote more time than most investors in deciding what securities to buy and when to sell.

  • Liquidity - mutual fund shares can be sold at any time, and proceeds are usually received within a week or less.

  • Flow-through of dividends and capital gains and losses - a mutual fund that distributes at least 90% of net investment income is treated as a conduit - meaning that the mutual fund itself is not taxed, and the investors report the dividends and capital gains on their personal returns. If the fund distributes at least 97% of dividends and 98% of capital gains to investors, it is not subject to tax surcharges, so this higher amount is almost always distributed.


Exam Tips and Tricks
Most of the questions on the exam are concerned with open-end management companies or mutual funds.


Mutual Fund Types
Although many people think mutual funds are always composed of common stocks, the fact is that a mutual fund can be made up of any traded securities that suit the fund's objectives. Here are some examples of different types of mutual funds:

  • Stock funds - growth, value, large-cap stock, small-cap stock, international stock, sector funds

  • Bond funds - corporate, government, municipal, convertible

  • Money market funds - general, government, municipal

  • Balanced funds - a mix of stocks and bonds, sometimes known as asset allocation funds

  • Real estate funds - invest in a mix of real estate investment trusts (REITs), giving smaller investors a chance to gain exposure to the real estate sector in small amounts without high transaction costs.
Mutual Fund Classes, Sales Charges and Expenses
Related Articles
  1. Personal Finance

    RIAs and Brokers: What's the Difference?

    RIAs and brokers are held to different standards when providing investment advice. Here's how they differ.
  2. Investing Basics

    Brokers and RIAs: One and the Same?

    Brokers and registered investment advisors have some key differences. Here's what you need to know.
  3. Professionals

    Understanding Series 6

    Upon successful completion of the Series 6, an individual will have the qualifications needed to sell open end mutual funds and variable annuities
  4. Professionals

    Top Strategies on How to Become a Stock Broker

    Gunning to be a stock broker and want an edge? Here's some veteran advice.
  5. Trading Systems & Software

    Steps to Starting Up an Independent Broker Dealer

    Launching your own broker-dealer is a lot of work, but the potential payoff is great, both personally and financially.
  6. Professionals

    Understanding Series 63

    Series 63 is a securities license that entitles the holder to sell securities in a particular state.
  7. Professionals

    How To Answer Option Questions On The Series 7 Exam

    Learn how to answer option questions on the Series 7 exam. Pass your Series 7 exam with the help of these tips.
  8. Insurance

    Municipal Bond Tips For The Series 7 Exam

    Learn to distinguish between general obligation and revenue bonds to ace this test.
  9. Retirement

    6 Proven Tips For Series 6 Success

    These techniques can help you pass this test without the added stress.
  10. Insurance

    Tips For Passing The Series 6 Exam

    Find out what you can do during the test to make sure you get a passing score.
RELATED TERMS
  1. Series 6

    A securities license entitling the holder to register as a limited ...
  2. Series 79

    A examination to ensure a candidate is qualified to become a ...
  3. Research Analyst

    A person who prepares investigative reports on equity securities. ...
  4. Series 34

    An exam required for individuals seeking to engage in off-exchange ...
  5. Financial Advisor

    One who provides financial advice or guidance to customers for ...
  6. Series 23

    An exam offered by the Financial Industry Regulatory Authority ...
RELATED FAQS
  1. If I have only a limited amount of time to study for the Series 6, what should I ...

    The Series 6 Investment Company and Variable Contracts Products Representative Qualification Examination is administered ... Read Full Answer >>
  2. What role does the 'chip cycle' play in the electronics sector?

    There are several highly acclaimed private Series 6 Exam courses in the United States. Many can be completed online. Popular ... Read Full Answer >>
  3. What does passing the Series 6 enable me to do?

    The Series 6, or the Investment Company Products/Variable Contracts Limited Representative, exam is administered by the Financial ... Read Full Answer >>
  4. What are the differences between the Series 6 exam and the Series 7 exam?

    The Financial Industry Regulatory Authority (FINRA) offers a variety of licenses that must be obtained before conducting ... Read Full Answer >>
  5. Do I have to successfully complete the Series 7 exam before I can register for the ...

    There are no prerequisites to register for the Series 63 exam. However, once you have registered for the exam, you must schedule ... Read Full Answer >>
  6. I completed the Series 6, do I have to complete the entire Series 7?

    After having written the Series 6 examination, there would be significant overlap with the Series 7 in areas such as mutual ... Read Full Answer >>
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!