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Friday, June 01, 2007

What are Mutual Funds all about?

I came to know about Mutual Funds and how they operate only a few years back - so let me share with you just incase you didn't know too. Mutual Funds are usually aimed at small investors like middle class families. Because investing is risky, diversification is necessary. But diversification is very expensive for the small investor so he buys a share of a mutual fund.

The mutual fund uses all the money of these investors to build a portfolio of investments that's diversified and tries to achieve a specific investment goal. The investor gets a share of the profits of the mutual funds when they distribute cash or when the investor liquidates his share.

Some of the problems with mutual funds is:

1. Costs: Fund Managers are expensive (to hire).
2. Distributions: Most mutual funds are slow beasts, not nimble as hedge funds and have difficulty exiting large positions. This means that a lot of your gain are paper profits, subject to evaporate at any moment. People who put money in mutual funds during the late 90s had almost everything disappear because the funds engaged in dumb investing. There was no money made as distributions only happened after the crash.
3. Nature of the business: Managers have no incentive to be aggressive so you end up with average returns.

So the other option you have is for you to use a good options trading software. One of the software's available is PowerOptions which provides the essential data you need to invest with stock options. The software allows to Find, Compare, Analyze, and Make Money On Stock Option Trading very easily. It comes with a 14-day free trial (NO credit card required). Also it has an easy online User Guide and a toll-free phone-in support.