|
According to the SEC a mutual fund is a company
that pools the money of many investors, its shareholders, to invest
in a variety of different securities.
They
are open-end funds that are not listed for trading on a stock
exchange and are issued by companies which use their capital to
invest in other companies. Mutual funds sell their own new shares to
investors and buy back their old shares upon redemption.
Capitalization is not fixed and normally shares are issued to the
public.
Mutual funds take the money they receive from the
sale of their shares and use it to purchase various investments such
as stocks, bonds and other securities. The mutual fund investor
receive equity in the fund and each underlying security. The price
of a share in a mutual fund will fluctuate daily depending upon the
performance of the securities held by the fund. The mutual fund
investors are usually free to sell their shares at any time.
Advantages of mutual funds include
diversification and professional money management. Mutual funds
offer choice, liquidity, and convenience. While all funds have to
pay their management team and take a small percentage of the pooled
money to do so, those costs are minimal compared to the cost of an
investor would have to spend to hundreds of individual, commissioned
trades needed to achieve the same diversification and investment
strategy. There are charge fees and often require a minimum
investment.
|
