| A mutual fund is a portfolio of stocks, | | | | unlimited number of investors or money |
| bonds, or other securities that is | | | | in the fund. Managers of closed-end |
| collectively owned by hundreds or | | | | funds, on the other hand, decide upfront |
| thousands of investors and managed by a | | | | how many shares they will issue and when |
| professional investment company. The | | | | they will sell them. The only way to |
| shareholders are people who have similar | | | | purchase shares in a closed-end fund, |
| investment goals. Each fund has specific | | | | once the original shares have been sold, |
| investment criteria, which are spelled | | | | is to buy them from a current investor. |
| out in its prospectus, the official | | | | Occasionally, open-end funds can and do |
| booklet that describes the mutual fund. | | | | close to new investors, often because of |
| Investors then know what they are | | | | high cash inflows that cannot be |
| getting and can match their objective to | | | | invested in a timely manner. They do not |
| that of a fund. The pooled money has | | | | become closed-end funds, however, |
| more buying power than one investor | | | | because current shareholders can still |
| alone, so that a fund can own hundreds | | | | buy additional shares from the fund |
| of different securities. Thus, its | | | | company. |
| success is not dependent on how just one | | | | When investors purchase a mutual fund, |
| or two companies perform. | | | | they own a piece of an investment |
| A mutual fund makes money in several | | | | portfolio. They share in the gains, |
| ways: by earning dividends or interest | | | | losses, and expenses in proportion to |
| on the investments it owns and by | | | | the amount they have invested in the |
| selling securities that have appreciated | | | | fund. |
| in value. You, in turn, make money in | | | | At the close of every trading day, a |
| the form of dividends and interest that | | | | mutual fund company tallies the value of |
| are passed on to you and the increase | | | | all the securities in its portfolio and |
| (or decrease) in the fund's value. The | | | | deducts its expenses (e.g., management |
| mutual fund manager keeps constant watch | | | | fees, administrative expenses, |
| on financial markets and adjusts the | | | | advertising costs). The balance is |
| portfolio to achieve the strongest | | | | divided by the number of shares owned by |
| returns. By owning part of a fund, the | | | | shareholders to arrive at the dollar |
| hard work of selecting and monitoring | | | | value of one share of the mutual fund. |
| stocks and bonds is done for you. | | | | This value, the net asset value or NAV, |
| The majority of mutual funds available | | | | is the price your fund pays you per |
| are open-end funds, which are the focus | | | | share when you sell. |
| of this unit. Open-end funds can have an | | | | |