A mutual fund is a financial intermediary that allows a group of investors to join forces and invest their money in a predetermined investment objective. The mutual fund will have a fund manager who's job it is to invest their money into specific securities, usually stocks or bonds, on their behalf. When you invest in a mutual fund, you are buying shares of that mutual fund and become a shareholder of the fund.

Mutual funds are a perfect opportunity for the lazy or inexperienced investor. They are very cost efficient and easy to invest in as you don't have to figure out which stocks or bonds to buy. This is all done for you. Even so, caution is always required were your money is concerned.

With this in mind, here are ten of the most important questions you should be asking before deciding on a specific fund to invest in.

1. What is a mutual fund?

A mutual fund, otherwise known as an investment company, is a corporation
which pools together investor's money generally to purchase stocks and bonds.
Investors participate in the mutual fund by purchasing shares of the entire pool
of assets, thus diversifying their investment. The pooled assets are invested by
professional managers who buy and sell securities on behalf of the investors.


2. Why do people use mutual funds?

Many people purchase mutual funds because they are a convenient and cost
effective method of obtaining diversification and professional management.
Mutual funds hold anywhere from a few securities to several
thousand, this means risk is spread out over a number of investments.
Mutual funds generally buy and sell securities in volume, which allows
investors to benefit from lower trading, management and research costs.


3. Are there any disadvantages to using a mutual fund?

. All mutual funds charge expenses. Whether they be marketing, management
or brokerage fees fund expenses are usually passed back to the investors.

. Investors have no say and exercise no control over what securities
the fund buys or sells.

. The buying and selling of securities within a mutual fund,
generates capital gains and losses which are passed back to investors even
if they have not sold any of their mutual fund shares.


4. Closed-end funds vs. Open-end funds.

Closed-end funds have a fixed number of shares outstanding and are
traded just like other stocks on an exchange.

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