Mutual Fund
A mutual fund is a professionally managed investment vehicle that pools money from multiple investors to purchase a diversified portfolio of securities.
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)
SecuritiesNAV is the per-share value of a mutual fund or ETF, calculated by dividing total assets minus liabilities by the number of outstanding shares.
ETF (Exchange-Traded Fund)
SecuritiesAn ETF is an investment fund that trades on stock exchanges like individual stocks, typically tracking an index with lower fees than mutual funds.