Mutual Funds

When people talk about funds, expect to hear something about mutual funds sooner or later. Funds.org prefer sooner so here are the things that you should know about mutual funds.

Defining Mutual Funds

A mutual fund pertains to a firm, which is managed professionally, of collective investments. The firm accumulates money from a number of investors and uses it in bonds, stocks, securities, and other financial instruments. In layman’s terms, a mutual fund is a collection of money from investors, companies, and organizations.

Meet the Fund Manager

There should be a fund manager for a mutual fund to work. This person is held responsible when it comes to trading or investing the primary securities of the mutual fund, recognizing capital gains as well as losses and, lastly, handing out proceeds to individual investors. The fund manager is also referred to as the portfolio manager.

Types of Mutual Funds

Essentially, mutual funds can be classified as either closed-end funds or open-end funds.

Closed-end funds
This type of mutual fund involves a fixed number of shares which becomes available through an initial public offering. These shares are then traded in the open market. A closed-end fund does not issue new shares so it is very dependent to the laws of supply and demand.

Open-end funds
A lion’s share of mutual funds falls under open-end funds. Contrary to closed-end funds, there is no predetermined number of shares. Open-end funds can be further divided into load and no load. Simply put, a load involves sales commission while no load does not. An investor is going to pay, not only for the net value of a share, but also the sales commission if an open-end fund charges a load.