What is a mutual fund.?

There are two types and open ended and close ended. Mutual Funds are really open ended funds, they can continuously issue shares to investors. The fund has a prospectus that outlines the risks and objectives.

There are all types of things the fund could invest in. It could be a specific sector, large, mid or small companies, international, emerging markets, could be a bond fund.

Then there is a fund manager(s) who determines what investments to buy and sell and hold which will cause the appreciation of the share price which makes you money when you sell it. Or through dividends.

Mutual funds also have expenses, every fund has an expense ratio which is comprised of the management fee - what the manager(s) gets paid, and the rest is administrative costs. Some funds also charge fees called loads, which could be upfront, through the life or when you sell it, generally I would recommend staying away from loaded funds, there is much more out there you can get at a cheaper price.

A mutual fund is simply a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. The mutual fund will have a fund manager who is responsible for investing the pooled money into specific securities (usually stocks or bonds). When you invest in a mutual fund, you are buying shares (or portions) of the mutual fund and become a shareholder of the fund.

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