Mutual Funds 101 Part One

Are you new to the stock market game? Not a problem! This series of articles on mutual funds will make it easy for you to understand what a mutual fund is, what it is all about and whether it is worth your while to invest in one. My first three articles are titled “Mutual Funds For Beginners” and they lay down the basics.

The next one is titled “Expenses Associated With Mutual Funds” and it goes over the general things you can expect to be charged for if you make the choice to invest in a mutual fund. The last two are called “Is Investing in a mutual fund worth your while?” and they cover the pros and cons of mutual funds. First let’s break things down to a molecular level and talk about securities. The fancy definition of a security is a negotiable instrument representing financial value.

This definition is kind of hard to grasp so let us take a look at an example of a security to help you get a better idea of what one is. A stock is considered a security. Stocks can be purchased or sold, and therefore have financial value, and a share of stock literally means that as a stockholder you “share” a fraction of ownership in the company whose stock you own. Bonds, which are contracts to pay back money with interest on specified dates, are also securities. If you hold a bond, you know that you are going to receive money on these set dates, so bonds have financial value as well.

Stocks are bought and sold at exchanges called stock markets, and bonds at bonds markets. A bonds market is typically very different from a stock market. If you were looking to invest in stock, or sell the stock you have, you would hire the aid of a stock broker who would charge you a commission for completing this work for you.

Usually you are going to need some sort of a broker to help you do this, unless you already own stock from the company you would like to purchase from. The same goes for bonds – you are going to need a dealer. Now that we have the very basics down, let’s go over mutual funds. See my article “Mutual Funds For Beginners Part Two!

Mallory Megan works for Rapid Recovery Solution and writes articles on credit collection agencies. Also published at Mutual Funds 101 Part One.