What you need to know about mutual funds A mutual fund is a professionally managed type of collective investment system that pools money from many investors and typically invests in marketable securities (stocks, bonds, short-term money market to other mutual funds, other securities, and / or products such as precious metals).
Mutual funds are divided into shares and can be purchased just like stocks, allowing mutual funds have high liquidity. Mutual funds are mounting, as an exception for small investors because they diversify the money from an individual among a number of investments. Investors share the benefits of a mutual fund, and shares of mutual funds can be sold to the company every working day at the NAV price. Mutual funds may or may not have a charge or fee, but with a load funds will offer expert advice that can help the investor choose a mutual fund.
Types of mutual funds
Open End Mutual Funds - A mutual fund whose shares bought and sold by the fund itself. An investor invests by sending the company's mutual funds with a check which then calculates the net asset value at the close of business on that day and credits to the investor the appropriate number of shares. When investors sell their shares, the company buys mutual fund shares and calculates the amount due on the net asset value.
Closed End Mutual Funds - A mutual fund that trades like other stocks. The price is determined by the market. If the price is higher than the NAV of mutual fund is said to trade at a premium. If the price is below the net asset value of the fund is said to trade at a price (normally trade funds to a small 5-10% [] to reduce the net asset value).
Index Fund - Fund which seeks to reflect the results of an index like the S & P 500 Index, the Wilshire 5000 Index and the FTSEurofirst. Since the Fund seeks simply to reflect the composition of the index of cost analysts, etc. are avoided and index funds have a lower ratio of expenses.
Net Asset Value (NAV) - Total assets minus total liabilities divided by the total number of shares outstanding. The NAV is calculated daily by the fund.
Admission - open end mutual fund with a sales tax (usually to pay vendors, dealers, etc..) The "load" is a percentage of the total purchase price and often with more large drops have invested.
Back End Load - an open end mutual fund with a sales tax (normally paid salespeople, stockbrokers, etc..) The "load" is charged to the investor on the sale rather than buying . It is calculated as a percentage of total sale price.
12b-1 fee - open end mutual fund with a sales tax (usually to pay vendors, dealers, etc..) This tax is a percentage of the total value. Often, it is levied on mutual funds without front loads (to provide for payment to vendors and dealers without having to acquisition costs that visible to the customer).
Money Market Funds - Money Market Fund hold 26% of the assets of mutual funds in the United States. [12 funds] money market with the least risk, and lower rates of return. Unlike certificates of deposit (CDs), the market shares of cash and are redeemable at any time.
Exchange Traded Funds - An exchange-traded fund (ETF or) (also known as Exchange Traded Product (FTEs)) are securities that are much like index funds, but can be bought and sold during the day as shares ordinary. These investment vehicles allow investors a way appropriate to purchase a broad basket of securities in a single transaction. Essentially, ETFs offer the convenience of a stock with the diversification of a mutual fund.
Conversely Fund - ETF designed to act as short positions would be. For example, if they target the index down 1% the fund would increase in inverse 1.
Posted on January 8, 2010.
