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Buying shares directly from a mutual fund tends to be cheaper
than buying single stock shares yourself. This is because mutual funds buy or
sell thousands of shares a day, reducing transaction costs dramatically.
To buy or sell shares from a mutual fund, you make an initial
deposit to open an account. You can buy or sell shares from the money in your
account over the phone or online. When you redeem your fund shares, you'll
receive a check for the net asset value (NAV) of the shares. You can redeem your
shares for cash anytime, also via the phone or online. The funds from your
redemption are usually available within a day or two and can be wired directly
into your bank account. Some funds allow you to receive regularly scheduled
withdrawal checks. Dividends can be received in cash or reinvested back into the
fund to buy more shares. Proceeds from redemption of shares are subject to
capital gains tax if you redeem them at a profit.
For even more
convenience, you can participate in a mutual fund's automatic investment
program to purchase mutual fund shares on a regular basis. With automatic
investment, a fixed amount of money is automatically taken out of your bank
account on a regular basis to buy shares.
It is just as easy to choose a fund from a fund family that
matches your investment style and risk tolerance. Different types of funds have
different risk levels and investment strategies. Some seek maximum growth of
capital while others seek high interest returns; still others try to balance
both objectives. You can choose from aggressive growth funds, growth and income
funds, and fixed-income funds.
companies are required to send you a fund prospectus containing necessary
information about each mutual fund.
The most important areas to look at in a prospectus are
investment objective, management, costs, and performance. All of this
information is usually found in the first few pages of the prospectus.
To conclude this tutorial, let's summarize the ways in
which a mutual fund offers an investor a complete investment