Describe investment terms that are important to mutual fund buyers - Essay Example

Describe Investment Terms that are Important to Mutual Fund Buyers Affiliation with more informationabout affiliation, research grants, conflict of interest and how to contact. Describe Investment Terms that are Important to Mutual Fund Buyers. This paper discusses the investment in mutual funds along with a discussion on the case study. Mutual funds are a type of new investment opportunities available to investors today. Mutual fund investments are gaining a growing demand these days because of its cautious nature in which money is handled in the mutual fund markets.

“The single most important benefit of mutual funds is the fact they are a bundle or portfolio of stocks” (Buying Mutual Funds: Part 1, 2004, para 3). Some of the important terms associated with mutual fund investments are 12b-1 fee, annual return, beta value, capital gains, dividends, closed end funds and net asset value (NAV) etc. Investigating the case of the Garners that has been provided for case study, it is understood that both Joe and Mary Garner had not made any investment plan. The lack of any investment plan has affected the savings of the Garners and they are facing a fund tight condition even to go for a vacation, which they had been planning from a short time.

The options available for Garners to invest are either in the stock market or in the mutual funds market. Both the stock markets as well as the mutual fund market have advantages and disadvantages. Both the markets have associated risks as well as high returns but the risk in mutual fund market is comparatively very less than the stock market. Therefore it is advised to the Garners family to invest in mutual fund market rather than the stock market. The Garners did not recognize lack of an investment plan as a cause of their financial meltdown until recently.

“Mutual funds and stock market investments are probably the most attractive investment options as they have the potential to yield high rate of returns” (Candid, 2011, para. 1). The total monthly income, which enters the Garner household, is $ 4520. Their monthly expenses were also calculated. In their monthly expense account $ 1385 was a fixed expense, which would be incurred in all the months while $ 920 was a variable expense, which varied from month to month. Therefore, the saving was $ (4520 – 1385 – 920) = $ 2215.

Since the month expense of $ 920 was a variable expense, therefore an approximate value of $ 2000 can be invested by the Garners as a part of their investment plan. The best possible option for them since they are very cautious investors is to invest in mutual funds. “Mutual funds are a lucrative investment, ensure higher returns, better tax benefits and carry minimalist risk” (Why Mutual Funds are Better than Fixed Deposits, 2011, para. 1). Mutual funds offer fixed maturity plans, which are far better than the fixed deposits offered by the banks.

Fixed maturity periods could range from 1 year to several years and one of the most important factors is that fixed maturity plans are not invested in equity market. Debt and money market comprises the fixed maturity plans. Only the fluctuation in the NAV needs to be considered in the mutual fund market. Another important benefit is that mutual funds’ fixed maturity plans do not have any taxation condition in comparison to the fixed deposits in bank, where interests on bank deposits are taxable.

The Garner family can put $ 2000 in the fixed maturity plans of the mutual fund scheme in order to increase and develop their investment plans. Reference List Buying Mutual Funds: Part 1, (2004). Money-Zine.com. Retrieved on 25, Dec. 2011. http://www.money-zine.com/Investing/Mutual-Funds/Buying-Mutual-Funds-Part-I/ Candid, S. (2011). Investment Basics: Mutual Funds vs. Stock Market Investments. Hub Pages. Retrieved on 25, Dec. 2011. http://sidcandid.hubpages.com/hub/Investment-Basics-Mutual-Funds-vs-Stock-Market-Investments Why Mutual Funds are Better than Fixed Deposits, (2011). IBNlive.com.

Retrieved on 25, Dec. 2011. http://ibnlive.in.com/news/why-mutual-funds-are-better-than-fixed-deposits/45407-16.html