What It Is:
Fund usually refers to mutual fund, which is an open-ended investment company that pools investors' money into a fund operated by a portfolio manager. This manager then turns around and invests this large pool of shareholder money in a portfolio of various assets or combinations of assets.
How It Works/Example:
Funds issue and redeem shares on demand at the fund's , or net asset value. Mutual fund management fees typically range between 0.5% and 2% of assets per year, but 12b-1 fees, exchange fees and other administrative charges also apply.
There are several different types of funds of which you should be aware:
- Closed-End Funds: Closed-end mutual funds issue a fixed number of investing public and usually trade on the major exchanges just like corporate stocks. Closed-end funds often invest in a particular sector, a specific industry or a certain country. to the
- Open-End Funds: Open-end mutual funds stand ready to issue and redeem basis. Shareholders buy the at net asset value ( ) and can redeem them at the current . on a continuous
- term "load" refers to the sales charge paid by an investor who purchases in a mutual fund. When the sales charge is imposed at the time of purchase, this is known as a front-end load. Conversely, back-end loads represent charges that are assessed when the investor eventually sells the fund. Funds: The
- No-Load Funds: A no-load fund is sold without a sales charge.
Additionally, a given fund may issue different classes of itsto investors. The most common variations of for load funds are front-load , back-end-load and level-load .
- A shares charge a front-end load at the time of purchase. This is a sales fee that is charged as a percentage of the total and is used to compensate the financial representative who sells the fund. The amount of the front-end load is subtracted from the original . For example: If an investor places $10,000 in a mutual fund with a front-end load of 2%, then the total sales charge would be $200. The remaining $9,800 go toward the purchase of shares in the fund. Also, A shares may impose an asset-based sales charge. Investors do not pay these charges directly. Instead, they are taken from the fund's assets. The fund then uses these fees to and distribute its shares. The , which can equal a maximum of 0.25% per year, is an example of an asset-based sales charge. : A mutual fund's
- B Shares charge back-end loads. When an investor purchases B shares, the sales charge is deferred until the fund is sold. This deferred load usually decreases each year. B shares typically charge a higher asset-based sales charge than . For example, the B shares of a fund may carry a 5% load if shares are sold within the first year. This of 5%, however, could be reduced by 1% every year until it is eliminated in the fifth year. Some B shares automatically convert to A shares after a specified period of time, which reduces the . :
- C Shares typically do not impose a front-end load but often charge a nominal fee if the shares are sold within one year. often impose a high asset-based sales charge but not convert to A shares when the load reverts to zero. :
Why It Matters:
It is an important for an investor to consider mutual funds among theiropportunities. Just as with any , the pros and cons must be compared.
Advantages of investing in funds include:
- Many funds charge hefty fees, leading to lower overall returns.
- Statistics show that most actively managed funds tend to benchmark averages over time. their
- Funds cannot be bought or sold during regular trading hours, but instead are priced just once per day.