Mutual funds aggregate the monies of several people and invest the monies collected in stocks and bonds and many other assets than would otherwise be possible. Investors get proportionate stakes of the fund and hence get a broader market section than when investing directly in the market. In other words, mutual fund involve pooling of a portfolio for a joint investment.
Fund returns are crucial for understanding the returns offered by the mutual funds and comprise of elements such as:
Income Distribution: On the same note, mutual fund makes income through dividends and/or interests that is distributed to the investors in the form of distributions. Fund investors are free to receive cash checks or, conversely, to use the earnings to buy other shares of the fund.
- Portfolio Distributions: Capital gains realised from sales of securities in the fund are distributed to investors in the form of distributions to recover a proportion of the generated gains.
- Capital Gains: The ability to sell mutual fund shares at a profit in the market presents the ability to take gains on capital which imply a chance to earn on total increase in the fund’s price.
