Business Glossary

portfolio of securities professionally managed by the sponsoring management company or investment company that issues shares to investors. A no-load fund does not charge a sales commission to buy shares, whereas a load fund does charge one. Mutual funds also charge management fees. The major advantages of mutual funds are diversification, professional management, and ownership of a variety of securities with a minimal capital investment. Further, dividend rein investment and check-writing options may exist. Mutual funds are also convenient because recordkeeping is done by the fund. There are several drawbacks, however. Mutual funds may be costly to acquire because of sizable commissions and professional management fees.Traditionally, mutual fund performance on average has not outperformed the market as a whole. Quotations for mutual funds are statedin dollars and cents. The sale price is known as the NAV or net assetvalue. An illustrative quote for XYZ Stock Growth Fund follows:

The quotation tells us that a share in the fund on a particular day could be sold for $11.22-the NAV. On the same date, a share could be bought for $12.26. The difference between the sale price and the purchase price is due to the commission charged on the purchase transaction. The NAV change value of + .02 indicates that the sale price (NAV) increased by 2 cents a share from the preceding day.

Mutual funds may be classified into types, according to organization, fees charged, methods of trading funds, and investment objectives.In open-end funds, investors buy from and sell their shares back to the fund itself. Closed-end funds operate with a fixed number of shares outstanding. These shares are traded like common stocks among individuals in secondary markets. Closed-end funds, although a variation of the investment company, have quite different investment characteristics from open-end funds. For example, they may sell at discounts or premiums to NAV and have variations within the category (e.g., dual-purpose funds).Many different types of mutual funds exist, including growth stock funds, bond funds, money market funds, and tax-free security funds. A mutual fund family, which offers many various types of funds, typically allows its investors switching privileges at no cost or at a nominal fee.

fund operated by an investment company that raises money from shareholders and invests it in stocks, bonds, options, futures, currencies, or money market securities. These funds offer investors the advantages of diversification and professional management. A management fee is charged for these services, typically between 0.5% and 2% of assets per year. Funds also levy other fees such as 12B-1 Fees, Exchange Fees and other administrative charges. Funds that are sold through brokers are called load funds , and those sold to investors directly from the fund companies are called no-load funds . Mutual fund shares are redeemable on demand at Net Asset Value by shareholders. All shareholders share equally in the gains and losses generated by the fund.

Mutual funds come in many varieties. Some invest aggressively for capital appreciation, while others are conservative and are designed to generate income for shareholders. Investors need to assess their tolerance for risk before they decide which fund would be appropriate for them. In addition, the timing of buying or selling depends on the outlook for the economy, the state of the stock and bond markets, interest rates, and other factors.

investment company that pools money from its shareholders in stocks, bonds, government securities, and short-term money market instruments. Mutual funds can also invest in other marketable assets, such as futures, options, and collectibles. A mutual fund is also known as an open-end investment company, meaning that there is a continuous offering of new shares and redemption of outstanding shares.

When shares are sold, the fund's capitalization increases; it decreases when shares are redeemed by investors. (Unlike a closed-end fund , shares are not traded on organized exchanges.) The owners of a mutual fund own proportional shares in the entire pool of securities in which the fund invests, and pay taxes on distributions from the fund. Most mutual fund shares are redeemable at current Net Asset Value , although some have a back-end load or redemption charge when shares are liquidated. In any mutual fund, the value of shares owned depends on current market value of the portfolio, which is generally repriced daily.

combination of contributions of many investors whose money is used to buy stocks, bonds, commodities, options, and/or money market funds, or precious metals such as gold, or foreign securities. In theory, mutual funds offer investors professional money management and diversification into conservative investments, aggressive investments, or combinations of these. Mutual funds are sold either with a sales charge (load), no sales charge (no-load), or a moderate sales charge (low load). These funds charge a management fee as a percentage of assets under management, usually 1% per year on a downward sliding scale as the asset base increases. Many insurance companies sell mutual funds.

a type of regulated investment company that raises money from shareholders and invests it in stocks, bonds, options, commodities, or money market securities. At least 90% of its income must come from dividends, interest, and gains from the sale of securities; not more than 30% can come from stock held less than three months, options, and futures transactions. It must distribute at least 90% of its income; a corporate tax is paid on undistributed income.