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Investment companies investing in investment instruments including real estate. Mutual funds are popular to investors and represent equity in a professionally managed portfolio of securities. Major benefits of investing in real estate mutual funds are:
- Small minimum investment. An investor with limited funds can accomplish diversification by owning many securities in the portfolio.
- Diversification. Each fund share provides an investor an interest in many real estate companies.
- Automatic reinvestment. Most funds permit reinvestment of dividends and capital gains. Funds usually do not assess a sales fee on automatic reinvestments.
- Automatic withdrawals. Many funds permit shareholders to withdraw funds on a periodic basis.
- Liquidity. An investor may redeem the shares owned.
- Switching. An investor may change in his investments as his objectives change.
Mutual funds are of different types, according to structure, the fees charged, means of trading funds, and investment objectives. In open-end funds, investors buy from and sell their shares back to the fund itself. An example is Fidelity Real Estate. On the other hand, closed-end funds have a fixed number of shares outstanding, which trade among individuals in secondary markets like common stocks. All open and closed-end funds have management fees. A major point of closed-end funds is the size of discount or premium, which is the difference between their market prices and their net asset values (NAVs). Some funds sell at discount, which may make them more attractive. Funds charging sales fees are referred to as load funds. Load funds usually do not do better than no-load funds. Some analysts feel investors should buy only no-load or low-load funds. The prospectus of a real estate fund includes information as the fund's investment objectives, way of selecting securities, management and sales fees, and other costs.