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Mutual Fund
A pool of many investors’ money used to purchase stocks, bonds, or other securities on their behalf.
It is managed by an investment company regulated by the SEC, primarily under the Investment Company Act of 1940. The company is paid for its services via the fund’s expense ratio. Mutual funds differ in strategy, cost, risk and investment holdings – a prospectus will explain these in more detail. As an example, a mutual fund that invests in U.S. stock may be an “index” fund or actively managed fund.
“Open-end” mutual funds do not have a fixed number of shares, and are purchased and redeemed at NAV directly from the managing company. “Closed-end” mutual funds have a fixed number of shares which are bought and sold on an exchange between investors (generally not at NAV). Mutual funds may be sold with a load, which increases its cost to the investor, or not (i.e. no-load mutual fund).
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