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Understanding Mutual Funds

A well professionally managed scheme of collective investments that pool money from a large majority of willing investors and re-invest into stocks, bonds, short-term money markets, and a variety of other securities. Pooled monies are then up for trading and typically sent through a distribution directly to the investors. A key factor in the growth mutual funds was the changing of the Internal Revenue Code in 1975 which gave permission for individuals to open up individual retirement accounts or IRA's. Other retirement plans such as the 401K, 403b, and the recently added Roth IRA's have all been blossoming.

The mutual funds performance though it may vary during the course of each business day is a monitoring item which is quarterly recorded into various individuals portfolios. The final standing figures show in the annual report sent to all investors after the close of the fiscal year. Some of the mutual funds are tax free in certain instances and this helps investors with the deferment of payments until the mutual funds research indicates they are no longer performing.

An investor holding the mutual bond funds and perhaps a few of the stock mutual funds will weigh the odds against holding and selling. The investor always has the option to discuss the best recourse to venture down with the broker, but ultimately the decision is in the hands of the investor. Depending on the amount of money invested in the mutual funds the individual may decide to wait until after the end of the fiscal year to return mutual funds or to sell. The reasoning for this is to give the investor time to cash out, pay all the necessary expenses in the case of a short sell, and still have time to gather the collateral for payment to the Internal Revenue Service.

Higher and quicker returns bring higher dividend yields to the individual investor. The one downside is that these growth mutual fund institutions are not quick to pay dividend yields on a quarterly basis. Many of the growth mutual fund companies often pay dividend yields semi-annually instead. A balanced growth mutual fund portfolio is most likely to invest in a combination of up to date strategies. These may even include a level of investment in various bonds to stay on the conservative side, as there are risks when investing in the markets. On average they are less costly and much more efficient in the current tax laws.

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