Posted in Finance, Accounting and Economics Terms, Total Reads: 237
Definition: Common Stock Fund
A common stock is a share of ownership in an organization that doesn’t give any priveleges or guarantees such as guaranteed dividends or the status of a preferred creditor. A mutual fund that invests in such common stocks of publicly traded companies is called a common stock funds.
The main advantage that these funds provide, is investment diversification over multiple publicly traded stocks, and also saves time over researching and in particular, the overheads of buying and selling individual stocks. Even if we ignore the time aspect, if the fund’s management fees are lower than trading commissions / brokerage fees, it makes financial sense to go for these. The only disadvantage visibly, being that one loses control of the stocks to invest in.
To avert this however, there are various types of funds –
• Small-cap startup funds
• mid-cap value stocks
• Index funds etc.
The variety of these funds ensures that an investor can have the option of choosing the kind of stocks he wants to buy. Although these are called common stock funds, it is important for buyers to not be carried away by the name alone, and instead, look at the portfolio as part of that fund. Many of these primarily also invest in other types of securities albeit in a smaller proportion.