What is a Mutual Fund? More Americans invest in stocks and bonds through mutual funds than in any other way. Mutual funds are an investment alternative in which investors pool their money to buy stocks, bonds and other securities, and share in the profits and losses. Even an investor with limited resources can own part of an entire portfolio of diverse securities. A mutual fund is like an investment club with thousands of members.

Mutual Funds & Investment Clubs Mutual funds work like investment clubs, but… 1. Unlike members of an investment club, mutual fund investors do not decide which stocks and bonds to buy or sell. This is done by a fund manager – a professional who works for an investment company. 2. Mutual funds have additional fees, which we will discuss in detail later. 3. The Price Per Share of a mutual fund is called the Net Asset Value (NAV). It changes every day and depends on the value of the investments in the fund. Value of Investments – Mutual Fund Fees NAV = # of Shares Outstanding

Mutual Funds & Investment Clubs Mutual funds work like investment clubs… 4. Just like every investment club has its own goals, each mutual fund has its own goals, too.  Every mutual fund has different investment objectives  Some offer great risk and rewards; some offer less risk and rewards  Stock only; Bond only; Stocks and Bonds; specific sectors; government only; large cap only; small cap only; growth funds; index funds  There is a mutual fund for everyone!

Closed-end vs. Open-end Funds Mutual funds are classified as either… Closed-end Funds – (6% of all mutual funds) – a mutual fund with a fixed number of shares that are issued by an investment company when the fund is first organized. After all the original shares have been sold, an investor can buy shares from another investor. Shares are traded on the floors of stock exchanges or in the over-the-counter market.

Closed-end vs. Open-end Funds or… Open-end Funds – (94% of all mutual funds) – a mutual fund with an unlimited number of shares issued and redeemed by an investment company at the investor’s request. They can be bought and sold on any business day by contacting the investment company that manages the fund.

Mutual Funds – The Motley Fool You are also responsible for the information in the article titled “Advantages and Disadvantages of Mutual Funds” from the Motley Fool Website You should be able to answer all questions on the worksheet that accompanies this article.

Mutual Fund Prospectus The mutual fund prospectus provides investors with information about the fund, including investment objectives, investment strategy, past performance, costs/fees and risks.

The Low Down on Loads! You are also responsible for the information in the handout titled “Mutual Fund Sales Charges, Fees, and Expenses”. You should understand the benefits and detriments of Class A, B and C mutual funds.