Learn even more about this topic with the Encyclopedia of Personal Finance™
Mutual funds are among the most popular investments.
fund is a pool of money from many investors that is invested into a
portfolio of stocks, bonds, or other securities.
It is a ready-made portfolio. Investors who do not have the time
or inclination to create their own portfolios are attracted to this
diversification. Mutual funds are oriented toward income or growth.
funds invest in many of the income investments we discussed earlier.
Growth funds invest in stocks and other growth
Investors own shares of their mutual funds.
The value of a
share, called the net asset value (NAV), changes daily.
The NAV is calculated from the value of the underlying securities
held by the fund.
Mutual funds pay you dividends from earnings of the portfolio.
The portfolio may earn interest, dividends, or capital gains from the sale of
portfolio securities. You can also earn capital gains when you sell shares that
have risen in value.
You can buy shares directly from a fund. Some investors prefer to
buy shares through their brokers or financial advisors. Some investors like the
convenience of an automatic investment plan that allows their fund to withdraw
money from their bank accounts and invest it into the fund.
Mutual funds buy back your shares when you want to sell them.
Many funds allow you to redeem shares over the telephone. The fund's prospectus
explains your options for selling your shares.
Financial newspapers and other publications advertise mutual
funds and provide toll-free numbers for prospectuses.
Finally, a brief mention of some other available