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Mutual funds are funds that pool the money of several investors to invest in equity or debt markets.

Mutual Funds could be Equity funds, Debt funds or balanced funds. Fund are selected on quantitative parameters like volatility, FAMA Model, risk adjusted returns, and rolling return coupled with a qualitative analysis of fund performance and investment styles through regular interactions / due diligence processes with fund managers.

Conclusion :

A mutual fund brings together a group of people and invests their money in stocks, bonds, and other securities. The advantages of mutuals are professional management, diversification, economies of scale, simplicity and liquidity. The disadvantages of mutuals are high costs, over-diversification, possible tax consequences, and the inability of management to guarantee a superior return. There are many, many types of mutual funds. You can classify funds based on asset class, investing strategy, region, etc. Mutual funds have lots of costs. Costs can be broken down into ongoing fees (represented by the expense ratio) and transaction fees (loads). The biggest problems with mutual funds are their costs and fees. Mutual funds are easy to buy and sell. You can either buy them directly from the fund company or through a third party. Mutual fund ads can be very deceiving.

Investing In The Right Mutual Fund :

Every investor contemplating mutual fund investing should do some research on their specific needs, expectations of profits, and willingness to pay management fees. As stated previously, most mutual fund management fees are based on results. In this way in most cases any money paid to management oversight of a given mutual fund will be compensated with increased profits. This however is not always the case so one should do a cursory if not in-depth review of both a funds past performance but also its policies for fee structures. In most cases the decision by an investor to pursue mutual fund investment is a wise one. Over historical trading periods on average mutual funds obtain higher returns for their shareholders than individual investors can get on their own. It is recommended that while not all of ones stock investment portfolio need be invested in mutual funds, a healthy stock portfolio should at a minimum consist of 25% investment in this securities sector.

Advantages To Mutual Fund Investing :

Partaking in a mutual fund offers the investor many advantages over typical stock investment. Mutual funds pool not only investors, but their capital also. This increased buying power strengthens the mutual fund as a whole and enables it to capitalize on market trends and investment opportunities. With a mutual fund the investor will also enjoy professional management by a mutual fund manager. These managers make the bulk of their commissions based on the performance of the mutual fund. In this way they are highly motivated and usually very successful at guiding their mutual funds towards gains for their shareholders. Mutual funds are required by law to make annual or semi-annual payments to their investors based on the profit made by the funds investing activities. Mutual funds also have a tendency to protect individual investors from single stock losses as one might face in a personal stock portfolio with direct stock ownership. When a mutual fund invests in multiple sectors across the board, from commodities to companies, even other funds, it builds in a protective hedge against single sector loss. If a single component such as gold or a specific company falls in value, the overall mutual funds portfolio will almost always cushion against these sector losses. In conclusion, a mutual fund provides expert management in stock investment and protective investments measures against single sector performance.

This paper documents the tendency of mutual fund managers to follow analyst recommendation revisions when theytrade stocks, and the impact of these analyst revision-motivated mutual fund herds on stock prices. We find evidence that mutual fund herding impacts stock prices to a much greater degree during our sample period (1995 to 2006) thanduring prior-studied periods. Most importantly, we find that mutual fund herds form most prominently following aconsensus revision in analyst recommendations. Positive consensus recommendation revisions result, most frequently,in a herd of funds buying a stock, while negative revisions result, most frequently, in a herd of funds selling. This relation remains robust after we control for stock characteristics and investment signals that influence both fundtrading and analyst revisions and after using alternative measures of analyst revisions. In addition, mutual funds reactmore strongly to analyst information when it appears to be more credible.Perhaps our most interesting result is that mutual funds appear to overreact when they follow analyst revisions upgraded stocks heavily bought by herds tend to underperform their size, book-to-market, and momentum cohortsduring the following year, while downgraded stocks heavily sold outperform their cohorts. These findings suggest thatfunds initially overreact to analyst revisions. Further evidence indicates that once we account for herding in responseto analyst recommendation revisions, herding, in general, does not cause subsequent return reversals, nor does analystrevisions by themselves.Finally, we find that the selling of funds with greater career concerns (i.e., funds with poor past performance) plays agreater role in destabilizing stock prices, supporting the conjecture that analyst revision-induced herding is drivenpartly by noninformation related incentives. Further investigation into other incentives that drive herding on analystrevisions is left to future research.