Mutual funds are good investment option if you are looking to meet your financial goals. The best part about mutual funds is that they are managed by investment professionals and the risk involved reduces as the funds invested in the mutual funds get diversified.

A company dealing in mutual funds invests your money in a variety of bonds, stocks, assets, securities and many other short-term investment instruments. You will earn dividends when a mutual fund earns profit and on the other hand, the value of your shares will decrease if the mutual fund company faces a loss. Usually a professional investment manager will do all the buying and selling on your behalf to ensure that you get the best returns for your investments.

There are different types of mutual funds, namely equity funds, fixed income funds and balanced funds.

Equity funds involve just common stock investments. They are extremely risky but can end up earning you a lot of money. Fixed income funds are government and corporate securities. Fixed income funds offer fixed returns and the risk associated with these funds is very low. Balanced mutual funds are a combination of bonds and stocks. These funds have a very low risk factor but your investment will not earn a lot of returns.

Mutual fund shares can be purchased either through the mutual fund company or from a broker. The mutual fund share is bought at the net asset value of the fund. This is the price you have to pay when you buy a mutual fund share and it includes the shareholder's fee.

The shares of a mutual fund are redeemable. You can sell your shares back to the broker or to another customer. Most mutual fund companies continue creating new shares and selling them so that they can accommodate new investors.

Many people groan at the word "taxes", and usually do so with good reason. First of all, having to pay taxes on an annual basis often presents a financial burden for people. Each time you examine your paycheck, you might feel abused or cheated, considering the withholding amounts of federal income tax (that's not even mentioning state taxes, Social Security or Medicare taxes).

Even though taxes can be boring and tedious remember that there are some tax regulations that may benefit you. Be aware of all the possible tax deductions that are available and see if you are qualified for any of them. There are some deductions that let you take some of your financial output off your reportable income and some give you the right to not report certain income at all.

Tax Credits and Tax Deductions

There are currently five tax areas where tax deductions and credits can be taken and receive special treatment under the US tax laws:

1. Tax-free income is money you get that you do not have to pay taxes on. Tax exclusions or exemptions are examples of tax-free income. Most of the time, you do not have to report items such as these to the IRS since it does not affect your tax calculations.

2. Capital gains are profits you get from selling or exchanging property that has been held for at least a year or more. These capital gains, which are considered long term, will be subject to reduced tax rates, in comparison with taxes for other types of income, like salary or income from interest. Regular stock dividends, as well as stock mutual funds, get taxed with the same lower rates as capital gains.

3. Tax-deferred income is not currently taxed, but will become taxable at a later date. You could accumulate a larger amount, as income is growing, without incurring taxation.

4. Tax deductions are payments or expenses that reduce your taxable income. There are two classes of deductions: "above the line" deductions are subtracted from gross income, and can only be claimed if you file an itemized statement rather than the standard deduction (which will be explained later).

5. Tax credits are used to offset taxes owed, usually in a dollar-for-dollar exchange. There are usually separate forms that need to be filled out when claiming tax credits.

You can get your taxes done easily and quickly, while decreasing the amount of your money that goes to Uncle Sam.

There are a number of investment options available. Many people have chosen mutual funds as their primary means of investing. Mutual funds provide professional management, diversification, convenience and liquidity. As with all investments, mutual funds are not risk free. It is essential that you make an informed investment decision and choose a mutual fund which is right for you depending on your goals, investment time frame and risk tolerance.

Over the long-term, the success (or failure) of your investment in a fund also will depend on factors such as:

Fund's sales charges, fees, and expenses;
Taxes you may have to pay when you receive a distribution;
Age and size of the fund;
Fund's risks and volatility;
Recent changes in the fund's operations.

When you invest in a mutual fund, your money is combined or pooled with the money of other investors and used to purchase specific types of securities. Mutual funds are run by investment professionals who decide which investments to buy or sell for the fund. The professional picks from a wide variety of stocks, bonds, money market instruments, or other financial instruments. The investments selected will depend on the fund's investment objectives. That's why it's so important for you to choose a fund with objectives compatible with yours.

Generally, the success of your investments over time will depend largely on how much money you have invested in each of the major asset classes – stocks, bonds, and cash – rather than on the particular securities you hold. When choosing a mutual fund, you should consider how your interest in that fund affects the overall diversification of your investment portfolio. Maintaining a diversified and balanced portfolio is key to maintaining an acceptable level of risk.

The types of investments that a mutual fund holds, its investment goals, the fees charged, and information about who manages and advises the fund are described in a prospectus . You should receive and review a prospectus before investing.

There are many different websites that will offer information on the top mutual funds by category. Mutual funds are the best ways you can save for retirement.

You work so hard and yet if you do not save for rainy days, then what good is it? While choosing a mutual fund you should always check the returns it has given in the last five years or at least 3 years. Find out the top mutual funds by category and be with the winner.

It is important to understand mutual funds by category as there are different risks and rewards associated with it. As per the index there are different types of mutual funds ranging from small cap funds, Blue chip funds, mid cap funds, large cap funds and many more. These mutual funds are then further categorized by the way they yield returns to individuals. They can be global, growth, fixed income, mixed equity, core, and sector.

Listed below are the Top mutual funds by category

Global: Index of different countries would be the determining factor of such mutual funds performance. E.g. ishares: Brazil has given a return of 59.11% in the past 3 years; Fidelity Latin America (FLATX) has a return of 53.45%

Growth: One of the top mutual funds by category is growth. These are the most popular ones. CGM: Focus fund with a return of 31.46% over the past 3 yrs.

If you have considered investing with a mutual fund, you are not alone, millions of Americans are flocking to these open end mutual funds because they are recognizing the common sense of such a proposal.

Unlike hedge funds, Mutual Funds are very heavily regulated by the FTC making them a safe option for small investors. These work by pooling together many investors funds and controlling those funds to take advantage of opportunities that come about. Typically they will invest in stocks, bonds, and various security instruments, including even real estates and property like shopping centers or buildings. They tend to be very conservative with their choices however they are typically aggressive about getting in and out of investments. This means the return is usually quite good, depending on the fund.

The key point to remember when choosing a mutual fund is that past performance does not in any way indicate future results. Past performance can however indicate if the fund is consistent or not. It is wiser to avoid volatile funds that make large gains one year, then losses the next because this can indicate a measure of instability and risk taking. However, this must be a personal choice you make.

Also mutual funds are not guaranteed or insured by the FDIC or the government. Even if you bought the shares of your chosen fund from a bank, (which is insured by the government) they will typically be acting as brokers for the product and there banking status is not transfered to the product you purchase.