Mutual Funds

Mutual Funds ## What Is a Mutual Fund? A mutual fund pools money from many investors to purchase a diversified portfolio of securities — stocks, bonds, or a mix — managed by a professional portfolio manager. When you invest in a mutual fund, you buy shares of the fund itself, which in turn owns the underlying securities. Mutual funds are among the most widely used investment vehicles in the U.S., with trillions of dollars in assets under management. --- ## Open-End Funds Open-end funds are the most common structure. They continuously issue new shares when investors buy in and redeem (cancel) shares when investors sell. There is no fixed share count — the fund expands and contracts with investor demand. Net Asset Value (NAV) is the per-share price at which you buy or redeem shares: > NAV = (Total Assets − Total Liabilities) ÷ Shares Outstanding Example: A fund holds $50 million in securities, has $500,000 in liabilities, and 5,000,000 shares outstanding. > NAV = ($50,000,000 − $500,000) ÷ 5,000,000 = $49,500,000 ÷ 5,000,000 = $9.90 per share NAV is calculated once per day after the market closes at 4:00 PM ET. All buy and sell orders placed during the day execute at that end-of-day NAV — known as forward pricing. There is no intraday trading. --- ## Closed-End Funds Closed-end funds issue a fixed number of shares through an IPO and then trade on a stock exchange (NYSE, NASDAQ) just like any equity security. After the IPO, the fund does not issue new shares or redeem existing ones directly — investors buy and sell from each other in the secondary market. Because supply and demand in the secondary…