Mutual funds can play an important role in your overall investment portfolio. Understanding a few basics will help you make well informed decisions about these popular wealth management tools.
What is a mutual fund?
Technically, a mutual fund is a collection of stocks, bonds or other securities owned by a pool of investors. Each mutual fund has a professional money manager, a specific investment objective (such as "growth" or "income") and an investment plan it follows in building and maintaining a portfolio. With literally thousands of mutual funds to choose from, it is important to select a fund that has the same investment objectives as your investment objectives. Because when you invest money in a mutual fund, you are actually buying a "share" of the investment pool.
Where to learn more about specific funds?
Details about the manager, objective and plan as well as any fees associated with the fund and historical fund performance can be found in the mutual fund's prospectus. The prospectus should be provided to you prior to your investment in a mutual fund. Be sure to read it carefully before you invest.
How are mutual funds structured?
Mutual funds may be bought or sold for Net Asset Value (NAV) which is the total market price of all the investments in the portfolio, divided by the number of shares in the fund, calculated at the price of the investments at market close each day. You can purchase several classes of shares, which may have different fees associated with them. Ask your Financial Advisor for help choosing the class of share that is most appropriate for your goals and time horizon. Some mutual fund companies also offer discount pricing based on the number of shares you own in their fund families. Ask your Financial Advisor if you qualify for any discounts.
What are the benefits and risks of mutual fund investing?
Because your money is combined with that of many other investors, when you purchase shares of a mutual fund you have much more buying power than you would have investing on your own.
What are the tax considerations?
Mutual funds must distribute capital gains each year to shareholders to fulfill regulatory requirements. Funds also distribute their net income to shareholders regularly, according to a schedule published in the prospectus. Talk with your Financial Advisor and tax advisor about how the tax considerations may affect your investment plans.
Investors should consider the investment objectives, risks, and charges and expenses of a fund carefully before investing. Prospectuses containing this and other information about the fund are available by contacting your RBC Wealth Management Financial Advisor. Please read the prospectus carefully before investing to make sure that the fund is appropriate for your goals and risk tolerance. Historical fund performance does not guarantee the same results in the future. Principal value, share prices and investment returns fluctuate with market conditions. Your investment may be worth more or less than your original cost when you redeem your shares.