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What is a Mutual Fund?
It used to be that only wealthy people had the resources to hire their own personal money managers or to purchase large portfolios of stocks and bonds. Today, thanks to the popularity of mutual funds, practically anyone can benefit from a wide range of professionally managed investments.
When you invest in a mutual fund, your money is combined with the money of thousands of other investors with similar investment goals. Professional money managers use this pool of money to make a wide range of investments, such as partial ownership in many publicly held companies (stocks) and interest-bearing certificates issued by governments and corporations (bonds). A mutual fund affords you many benefits, from diversified investments to professional money management.
Each mutual fund has specific investment goals that can range from long-term growth to current income. In addition, a fund may invest in specific types of investments to reach its goals, such as dividend-paying stocks, international investments, or long-term bonds.
Owning shares of a mutual fund is similar to owning shares of stock in an individual company. The mutual fund company will ask you to vote for its board of directors each year, and to help determine other company matters. The mutual fund also may pay you dividends, which are a distribution of the company's profits.
The price of a share of a mutual fund is determined at the close of business each day. The price reflects the closing value of the all of the investments the fund holds in its portfolio on that day. Like stocks, the daily price of a mutual fund may go up or down.
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