What 's A Mutual Fund?

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What 's a Mutual Fund?
By Amy E. Buttell | Submitted On February 11, 2013

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Mutual funds are pools of money. Money from many different individual investors can be pooled with money from, say, the retirement fund of a global corporation.

This money is managed full time by professionals who are paid for their financial management expertise.

Mutual funds invest in a portfolio of stocks (equities), bonds, or money
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You can also transfer your money from one fund to another.

• Selection: There is a fund available for virtually any type of market sector that you might be interested in. A mutual fund screener is a good way to find high-quality funds for your portfolio. There are also mutual fund newsletters that provide investors with fund profiles and information.

• Liquidity: They offer an important combination of appreciation potential plus liquidity. Shares can be redeemed at the end of each day, based on the fund 's net asset value (NAV).

• Concise information: Based on mandates from the Securities and Exchange Commission (SEC), fund companies are obligated to provide a simple, easy-to-understand prospectus and investor reports. A prospectus spells out a fund 's goals, strategies, fees, and expenses. The shareholder report describes the fund 's most recent performance.

• Protection: While investors are not insured against investment loss, rules do exist that regulate mutual fund transactions, advertising, and communications with investors.

The Disadvantages of Mutual Fund Investing

• No guarantee: As previously noted, mutual fund investors are not protected by any guarantees against losses in their fund investments. Stock funds invest in stocks, and the stock market rises and falls. Individual holdings within a fund, and individual funds, fluctuate in value.

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