Investment Companies

A mutual fund investment company is an open-ended enterprise formed for the sole purpose of making money for its shareholders; and the key word is mutual. Shareholders collectively pool capital, which is invested by a manager or mutual fund management companies in a wide variety of securities, primarily stocks and bonds. Net asset earnings are later distributed amongst shareholders after a specified term. The guiding principle behind mutual funds has existed since Biblical times. New Testament believers pooled money and possessions for the common good: "Neither was there any among them that lacked: for as many as were possessors of lands or houses sold them, and brought the prices of the things that were sold, And laid them at the apostles' feet: and distribution was made unto every man according as he had need" (Acts 4:34-35).

Investment companies usually have specific objectives, which are outlined in the firm's prospectus. Potential investors usually buy shares in businesses that adhere to personal objectives and social viewpoints. Surprisingly, investing is a relatively low-risk venture. A properly managed fund alleviates shareholders from the burden of choosing which stocks and bonds to invest in and relieves them of accountability for how well or poorly the fund performs. Mutual fund management companies help direct and diversify portfolios; research, forecast and make qualified decisions about the type and number of securities to trade; and ensure that assets are dispensed equitably amongst shareholders and in accordance with local, state and federal government regulations. Managers also stay abreast of regulations regarding taxable income and capital gains and tax-free income from municipal bonds.

The theory behind any collective investment plan is that investors can more readily profit corporately than singly. Instead of researching, buying and selling stocks and bonds individually, usually at a greater trading cost and higher risk, shareholders can realize greater monetary gain by taking advantage of a larger diverse pool of available securities. Shareholders also have access to knowledgeable and experienced stock advisors without paying premium advisement fees. Buying shares in a top performing mutual fund investment company may be the easiest way for novice traders to diversify portfolios with a relatively small initial investment and at much less risk. Professional mutual fund management companies are composed of highly skilled, veteran traders who know the market and can steer shareholder assets to an almost unlimited selection of domestic and foreign industries, tax-free municipal bonds, and privately- and publicly-held corporations.

Management companies give shareholders a decided edge on market trading. A professional manager is like having a butcher for a brother-in-law: he knows how to select the choicest cuts of meat and doesnt mind trimming the fat. Similarly, good fund managers choose the choicest investments, while eliminating frivolous investments that eat up profits. Management requires financial acuity and stock advisory acumen. The average individual trader lacks the expertise to successfully and consistently choose securities and investment ventures that will pay off big. Mutual fund management companies are well worth the expense for shareholders to get the most from investing hard earned cash. Not only do managers monitor, research, buy and sell stocks and bonds 24/7, they also keep track of thousands of portfolios holdings and are entrusted to safeguard shareholder assets. Managers are constantly shopping for the best returns and highest yields for investments, including Treasury bills, savings bonds, certificates of deposit, and other insured, low-risk financial instruments.

Management costs can essentially be broken into two parts : contractual investment advisory fees and administrative expenses. Managers and management firms usually charge a flat rate contractual investment advisory fee, similar to a retainer, which consultant services for several holdings, or the cumulative value of a portfolio, rather than singly assessing each account. Administrative fees may include those incurred in the day-to-day operation of the fund: transfer fees for shares are bought and sold; bank custody and insurance fees; accounting expenses for tracking and recording portfolio activity; Security Exchange Commission (SEC) registration filing fees; and the expense of printing, publishing, and mailing shareholder statements, correspondence, and annual reports. Advisement and administrative costs are usually absorbed by the investment firm and deducted proportionately from shareholder earnings.

Mutual fund management companies also save shareholders money by using long-time relationships with brokers and networking with brokerage firms to invest without incurring exorbitant transaction fees assessed each time stocks are traded. Because managers buy and sell with large amounts of assets pooled by shareholders, they can sometimes trade without paying brokerage commissions due to the sheer volume of funds and securities involved. And because investments are so diverse, the chances of realizing greater returns increase dramatically. The experience, expertise, education, and enthusiasm of a professional manager can make all the difference between becoming a top performing mutual fund investment company and one that fails to produce expected earnings.

Potential investors seeking to buy shares in a mutual fund investment company can log onto popular search engines to access financial websites and locate reputable and well established firms. Many money management sites rate and rank companies and provide comparative data to help investors select the best funds. A reputable domestic firm will also be registered with the Securities and Exchange Commission and should have a website detailing current investment ventures. Investors may also contact companies via telephone or mail and request an annual report, or prospectus, which should profile holdings, capital gains and losses, and shareholder distributions. Investors should select funds which have a consistent history of profitable returns; which make a policy of insuring shareholder assets; and possess diverse portfolio holdings of reputable, publicly-owned corporations and government-backed securities, which limit risk. Above all, a good mutual should exercise non-discrimination, treating all shareholders fairly and equitably, regardless of amount of individual investments.