What is a mutual fund?

Question

What is a mutual fund?

Answer 1

These funds are a type of security that can be traded on the stock market, allowing shareholders to buy and sell shares in the funds. The revenue generated by purchase of shares is used by mutual fund manager to buy more shares of specific stocks, bonds, and other market securities and money market instruments.

Since the prices of the stocks, bonds, and other securities held by the mutual fund vary, the value of the fund changes. The average value of every share of the mutual fund is fixed daily based on the total value of the underlying securities held by the fund.

This involves the shareholders of a mutual fund directly with their investment as against those who just buy individual securities and observe as the prices fluctuate.

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Answer 2

An entity that is registered with the Securities & Exchange Commission whose purpose is invest and trade securities for a group of people who will share in the dividends or income earned from interest and who, after management fees, will distribute all trading profits/losses and/or investment gains/losses to the company's holder.

So it's a company that pools investors’ monies for the purposes of buying and selling securities to make trading profits and/or collect dividends and interest in which the investors will share in.

For this service, the fund company will charge a fee and this fee will be deducted before they will distribute any monies to the holders

Answer 3

an investment vehicle that diverifies your money over many stocks with other peoples. They may buy for example 10,000 shares of Sowthwest Airlines but you may only own 1 share. If you were to invest in SWA you must buy in 100 lot shares on your own

Answer 4

Think of it as a "basket of stocks".  By buying into 1 mutual fund you literally are buying into smaller shares of possibly hundreds of stocks.  This is great for a lot of reasons, most notably that if one or more stocks doesn't perform well because of a bad economy or any number of other reasons specific to that company, you aren't likely to lose nearly as much money.  Wikipedia is a good starting point for some basic information on this subject as well.  Please feel free to contact me for further help.

Answer 5

In a nutshell, a mutual fund is a collection of multiple stocks and bonds and other investments. Basically, an investment firm starts a fund by going out to the stock market and buying a bunch of different shares of companies and various different bonds. They then sell shares of their funds to you through your company (and out on the stock market).

So, you start your job and your company tells you to join their 401k plan. For example, my company uses Vanguard (an investment firm), however, their are many more large investment firms used accross the country like Fidelity. Now, Vanguard has gone out and built a bunch of different funds that invest in very different things. For example, one fund might invest heavily in technology stocks (like google, or yahoo), while another fund may be invested in international food markets, while another fund is invested in utility companies.

So, you decide it’s a great idea to join the company plan as you will defer a portion of your taxes and make free money.

You are then given a list you are supposed to choose from, of different funds. This is where it get’s tricky. What are the major types of funds? What funds should you buy? How to decide what funds are best? Should you choose the growth, value, index, bond, some other fund, or a combination thereof? Don’t worry, we’ll make some sense of this now.