As the mutual funds are redeemable, you can sell them on any business day. You can easily make money from mutual funds through dividend payments, capital gains distribution, & increased NAV.
You are free to decide whether you want dividend distribution & capital gains distributions or want the money to be reinvested in the fund.
Mutual funds can be open-end funds without any limit of issuing & selling its shares. However, fund manager can decide to close the fund to new investors if the fund becomes too large to be managed effectively.
On the other hand, closed-end funds establish the number of shares to be issued or available for sale to public in the Initial Public Offering (IPO). New investors can buy into the fund only if some willing seller is available.
Some of the common types of mutual funds are:
(a) Money Market Funds
It is a mutual fund that carries lower risk to investment. They are limited to investing in only high quality, short-term investments that are issued by U.S. government, U.S. corporations, and state & municipal governments.
Returns are usually twice as compared to earning from savings account but less than a certificate of deposit (CD).
(b) Bond Funds
It is a mutual fund with high risk & high return to investment as compared to money market funds. They carry the same risk as associate with purchasing of bonds.
(c) Stock Funds/Equity Funds
It is the mutual fund that invests in stocks with enough potential to provide large capital gains. While, income funds invest in stock that pays regular dividends. They carry the same risk as associate with purchasing of stocks.
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