Index Mutual Funds.

If you have decided to invest capital in a portfolio of performance mutual funds, then you should be aware that there are various types of actively managed mutual funds. The normal investment company fund will leave the choice of stocks and shares to the discretion of the investment manager and you, as the investor, have no input into the decision of where your money goes. This is a passive investment.

If you want to have more than a passive status in your portfolio of investments, but do not have the time or knowledge to make the detailed decisions, you should look into the option of index mutual funds.

Index mutual funds are an interesting variation on traditional, managed funds in that you can tell the investment management of your particular fund, which general area of the world's global market that you want to invest in.

For example, the asset manager of a general mutual fund will invest wherever in the world the manager of that fund sees fit, but with index mutual funds, you can specify areas like the Pacific Basin or Alternative Energy stocks.

This allows you, the investor, the opportunity to narrow the field of investment if you have a hunch that money is moving in a certain direction, but do not have enough knowledge to manage your investments yourself.

With some of these index mutual funds, you can specify that they track an index too. In our example, the tracking fund would invest in a proportionate ratio to, say, the top 50 stocks in our given sector, the Pacific Basin.

Index tracking funds empower the investor who has a hunch, but who does not have the time or even maybe the ability to track investments in a chosen field. The down side is that some of these index funds are expensive to be in. However, these actively managed mutual funds often outperform the target of the investment industry.

There is a reason for this extra expense in some types of funds but not in others. For example, if you go into a general performance fund investing only in the shares of companies that manufacture green things, there will probably be a lot of investors with you; but if you specify Chinese green products, you may be pretty much on your own and so charges for the fund manager's time will rise.

This is easy to understand, but can be quite hard to put up with, unless you get your niche market just right. Herein lies the trick of opting for index mutual funds - you are going for niche markets that you think that you know.

Many of these index tracking funds are no-load funds, so you have to take that into account before arriving at your decision to invest or not.

Index mutual funds are best suited to people who read the papers and who pride themselves that they have an idea about what is going on in the world, although they do not know the nitty-gritty about which firm does what and where.

This does not mean, however, that index mutual funds are set-and-forget financial products - all investment vehicles need reviewing at least once a year. Rather, if you 'bet' on the Pacific Basin and your investment pays off (or not), you may want to switch to another sphere of interest at a later date.