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What Is A Mutual Fund?: Advantages of Mutual Funds

A mutual fund is an investment vehicle that allows investors to pool their money together to purchase a portfolio of stocks, bonds, and other securities. This provides investors with diversification and professional management at a low cost. The price of a mutual fund is calculated each day based on the value of the underlying securities in its portfolio. Mutual funds offer advantages like diversification, affordability, liquidity, and access to professional money managers. Investors must pay taxes on any capital gains or dividend distributions received from their mutual fund holdings.

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67 views5 pages

What Is A Mutual Fund?: Advantages of Mutual Funds

A mutual fund is an investment vehicle that allows investors to pool their money together to purchase a portfolio of stocks, bonds, and other securities. This provides investors with diversification and professional management at a low cost. The price of a mutual fund is calculated each day based on the value of the underlying securities in its portfolio. Mutual funds offer advantages like diversification, affordability, liquidity, and access to professional money managers. Investors must pay taxes on any capital gains or dividend distributions received from their mutual fund holdings.

Uploaded by

Marjorie Cabauatan Birung
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
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WHAT IS A MUTUAL FUND?

A mutual fund is a type of investment in which investors pool their money together to
buy a portfolio of stocks, bonds or other securities in order to take advantage of
diversification and professional portfolio management at a reasonable cost. Securities in
actively managed funds are selected by a team of investment managers and research
analysts. Investing in mutual funds enables those investing a modest amount of money
to benefit from the same advantages enjoyed by large institutional investors.

The “net asset value” (NAV), or price of a fund, is calculated at the end of each trading
day by dividing the total value of the securities in the portfolio by the number of the
fund's outstanding shares. The NAV changes each day based on the value at market
close of the individual securities held by the fund.

Mutual funds come in many varieties, designed to meet different investor goals. Most of
Franklin Templeton’s mutual funds fall into one of four main asset classes:

EQUITY FUNDS

FIXED INCOME FUNDS

MULTI-ASSET FUNDS

ALTERNATIVE FUNDS

ADVANTAGES OF MUTUAL FUNDS


Mutual funds have several advantages over holding individual securities in your
investment portfolio.
1. Professional Management — A mutual fund offers investors access to full-time,
professional money managers who have the expertise, experience and resources to
actively buy, sell, and monitor investments.

2. Diversification — Mutual funds enable you to hold a wide variety of securities at a


much lower cost than you could on your own. If one investment decreases in value,
another investment in the portfolio may increase. By holding shares in various types of
funds, you can take advantage of opportunities in many asset classes across changing
market environments.

3. Affordability — Mutual funds enable even small investors to take advantage of


professional asset management and diversification with low investment minimums.
Compared to most funds, it would require a larger investment, and incur greater costs,
to purchase directly all of the individual securities held by a single mutual fund.
4. Liquidity and convenience — Most mutual funds allow investors to buy and sell
shares on any business day. Many funds enable you to set up a regular, automatic
purchase program to help you build a nest egg. They also allow you to automatically
reinvest interest, dividends, and capital gains in order to buy even more shares.

WHAT ARE THE TAX CONSIDERATIONS WITH


MUTUAL FUNDS?
Mutual funds are required to periodically distribute their dividends, interest, and capital
gains, if any, to their investors. This is usually done monthly, quarterly, or annually. Like
individual stocks and bonds, these distributions are subject to taxation. Dividend and
interest income is generally taxed at your ordinary income tax rate. Distributions of
capital gains from the sale of securities by the fund may be taxed as ordinary income or
as a long-term capital gain, depending on how long the securities were held by the fund.

Investors may also be subject to ordinary income tax or capital gains taxes when selling
fund shares based on how long the shares were held. Dividend distributions from
mutual funds that invest in municipal bonds are generally exempt from federal income
tax and in some cases by state income tax as well, depending on the fund. Capital
gains distributions generally are taxable. Taxes on mutual funds held in an individual
retirement account or other tax-advantaged account are generally deferred until the
holder begins withdrawing money from the account.

MUTUAL FUND FEES AND EXPENSES


Mutual funds charge fees to cover their expenses, which include professional
management, transaction costs for buying and selling securities, fund accounting, legal
and other general operating expenses. Investors may incur a sales charge when they
buy fund shares. Alternatively, they may be charged a redemption fee if they sell their
shares before holding them for a stated period of time.

The expense ratio for each fund states the annual percentage charged by the fund to
cover its expenses. Fees and expenses will detract from the fund’s returns.

TYPES OF MUTUAL FUNDS


Franklin Templeton offers a wide selection of mutual funds designed to meet different
investor goals. Most fall into one of four categories:
Equity Funds
Equity funds invest primarily in common stocks. These funds may have a specific
investment style, such as investing in value or growth stocks, or may focus on certain
sectors of the market, such as financial services, technology, precious metals, or
utilities.

LEARN MORE
Fixed Income Funds
Fixed income funds invest primarily in bonds or other debt securities, offering the
potential for income generation and capital preservation. Franklin Templeton offers a
number of different types of income-producing funds, each with its own characteristics
and level of risk, including government bonds, corporate bonds, municipal bonds,
securitized assets, bank loans, and currencies.

LEARN MORE
Multi-Asset Funds
Multi-asset funds provide exposure to a broad number of asset classes in a single
portfolio, offering a level of diversification typically associated with institutional investing.
This diversity allows portfolio managers to shift risk exposures by taking advantage of
short-term opportunities or managing short-term risks, particularly in volatile markets.
These funds may invest in a number of traditional equity and fixed-income strategies,
index-tracking funds, financial derivatives, and alternative investments, such as real
estate investment trusts (REITs) and commodities.

LEARN MORE
Alternative Funds
Alternative funds typically invest in a variety of strategies and asset classes to provide
risk and return profiles that have lower correlations to traditional asset classes in order
to reduce volatility and improve returns. These funds may invest in such assets as real
estate, private equity and debt, infrastructure projects, and derivatives.

LEARN MORE

WHY CHOOSE FRANKLIN TEMPLETON MUTUAL


FUNDS?
While many companies offer mutual funds, very few companies can rival Franklin Templeton’s
more than 70 years of experience. During that time, we’ve managed through all kinds of
markets—up, down, and everything in between. And we’re always preparing for what may come
next. This depth of experience, combined with our strength as one of the world’s largest asset
managers, has earned Franklin Templeton the trust of investors around the world.

Commitment to Active Management


While we believe there can be a role for passive investing in investors’ portfolios, our belief in
the value of active management has consistently been fundamental to our investment approach.
Active asset management provides the potential for outperformance and risk diversification
relative to the broad market.

Decades of Specialized Expertise


Each of our experienced investment teams provides their own unique style and perspective,
building portfolios based on proprietary methodologies. Our multiple manager structure brings
together specialized investment teams with distinct styles to offer clients a full range of
investment capabilities.

Global Integrated Platform


To give clients around the world access to our best products and ideas, our investment teams
are supported by a global platform that includes rigorous compliance and active risk
management. That around-the-clock support allows our investment teams to focus on research
and portfolio management.

HOW TO INVEST IN MUTUAL FUNDS

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