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Finance Dictionary and Glossary of Investment Terms
A security that gives small investors access to a well diversified portfolio of equities, bonds, and other securities. Each shareholder participates in the gain or loss of the fund. Shares are issued and can be redeemed as needed. The fund's net asset value (NAV) is determined each day. Each mutual fund portfolio is invested to match the objective stated in the prospectus.
Mutual funds are pools of money that are managed by an investment company and regulated by the Investment Company Act of 1940. They offer investors a variety of goals, depending on the fund and its investment charter. Some funds seek to generate income on a regular basis. Others seek to preserve an investor's money. Still others seek to invest in companies that are growing at a rapid pace. Funds can impose a sales charge, or load, on investors when they buy or sell shares. No-load funds impose no sales charge. Related: Open-end fund, closed-end fund.
An open-ended fund operated by an investment company which raises money from shareholders and invests in a group of assets, in accordance with a stated set of objectives. mutual funds raise money by selling shares of the fund to the public, much like any other type of company can sell stock in itself to the public. Mutual funds then take the money they receive from the sale of their shares (along with any money made from previous investments) and use it to purchase various investment vehicles, such as stocks, bonds and money market instruments. In return for the money they give to the fund when purchasing shares, shareholders receive an equity position in the fund and, in effect, in each of its underlying securities. For most mutual funds, shareholders are free to sell their shares at any time, although the price of a share in a mutual fund will fluctuate daily, depending upon the performance of the securities held by the fund. Benefits of mutual funds include diversification and professional money management. Mutual funds offer choice, liquidity, and convenience, but charge fees and often require a minimum investment. A closed-end fund is often incorrectly referred to as a mutual fund, but is actually an investment trust. There are many types of mutual funds, including aggressive growth fund, asset allocation fund, balanced fund, blend fund, bond fund, capital appreciation fund, clone fund, closed fund, crossover fund, equity fund, fund of funds, global fund, growth fund, growth and income fund, hedge fund, income fund, index fund, international fund, money market fund, municipal bond fund, prime rate fund, regional fund, sector fund, specialty fund, stock fund, and tax-free bond fund.
An enterprise that pools funds from customers and invests them in a portfolio of securities, theoretically in keeping with the goals and principals stated in its prospectus.With total assets of $4.22 trillion in August of 1997, mutual funds are increasingly the vehicle of choice for lay investors seeking a return on their savings. One reason is the staggering array of choices offered by the mutual fund industry. There are funds of every conceivable variety and risk level, but they fall into a few broad categories. Stock funds might be considered value or growth; the former are more conservative than the latter. Looked at a different way, stock funds also specialize in small, medium or large size firms, or firms in a particular sector, such as computers or health care or financial services. There are also many kinds of bond funds, as well as funds that invest in a mix of stocks and bonds. Most funds are professionally managed, but some index funds are run more or less by computer, since they seek only to match a market index, such as the Standard & Poor''s 500. Finally, there are money-market funds, which many people don''t even think of as mutual funds. In choosing a mutual fund, consider the fund''s track record, the tenure of its manager, and the level of fees charged. There is no evidence that funds charging a hefty load, or investment fee, outperform those that don''t, so it''s hard to justify load funds. Most funds are ""open end"" funds, but some are ""closed end,"" meaning they trade like stocks from investor to investor.