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