preview

Mutual Fund : An Open End Investment Company

Good Essays
A mutual fund is a collection of diversified investments combined into one fund chosen by the investment company. The mutual fund is classified by what type of funds are included within the fund. When an investor choses to invest in a mutual fund, he or she is adding their money to a pool of other investors money. This money is used to invest in a number of different securities based on specific investment goals. Investment companies choose to include many different stocks, as well as bonds or money market instruments in order to reduce risk and completely diversify the fund (Tyson, 2007). The investor owns shares of the funds rather than owning the underlying investments (Morris & Morris, 2005).
A mutual fund is considered an open-end investment company because the securities within each fund can be bought or sold regularly. This means that the funds that are in the fund as well as the number of shares held within the fund may change periodically. They are not purchased on the stock market nor are the purchased from other holders. They are specifically bought from the fund manager at that day’s closing net asset value. (Kelly, 1996)
Types of Mutual Funds There are three main categories of mutual funds: stock funds, bond funds and money market funds. There are also allocation funds or balanced funds and targeted date funds. Other fund types include international and global funds. Most funds specifically choose to diversify by choosing a wide variety of investment
Get Access