Mutual Fund
A mutual fund is a professionally managed investment vehicle that pools money from multiple investors to purchase a diversified portfolio of securities.
🎬 Video Explanation
Exam Tip
Mutual funds are priced ONCE daily at 4 PM ET. ETFs trade throughout the day.
What is a Mutual Fund?
A mutual fund collects money from many investors and invests it in stocks, bonds, or other securities. Professional managers make the investment decisions, providing diversification and expertise.
Key Characteristics
| Feature | Description |
|---|---|
| Diversification | Spreads risk across many securities |
| Professional Management | Experts make investment decisions |
| Liquidity | Can be redeemed at NAV daily |
| Pricing | Priced once daily at market close |
Types of Mutual Funds
- Equity Funds - Invest in stocks
- Bond Funds - Invest in fixed income
- Money Market Funds - Short-term, low-risk
- Balanced Funds - Mix of stocks and bonds
- Index Funds - Track a market index passively
Share Classes
- Class A - Front-end sales load, lower ongoing expenses
- Class B - Back-end load (CDSC), converts to Class A
- Class C - Level load, higher ongoing expenses, no conversion
Net Asset Value (NAV)
NAV = (Total Assets - Liabilities) ÷ Shares Outstanding
You buy and sell mutual fund shares at the NAV (plus any sales charge).
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Related Terms
Net Asset Value (NAV)
NAV is the per-share value of a mutual fund or ETF, calculated by dividing total assets minus liabilities by the number of outstanding shares.
Exchange-Traded Fund (ETF)
An exchange-traded fund (ETF) is an investment fund that trades on stock exchanges like individual stocks, typically tracking an index while offering diversification, low costs, and tax efficiency.
Expense Ratio
An expense ratio is the annual fee charged by a mutual fund or ETF to cover operating expenses, expressed as a percentage of assets under management. Lower expense ratios mean more of your money stays invested.
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