What Are Mutual Funds Essay Research Paper

What Are Mutual Funds. Essay, Research Paper

What is a Mutual Fund and How Does It Work.

Think of a mutual fund as an investment company that pools the money

of people just like you for one common reason — to make more. Not all

pots of money, though, are alike. Each mutual fund has its own strategy

and investment objective for making money. It’s up to you to select the

right mutual fund for you based on your own needs.

There are two types of mutual funds. The most common, which this

book primarily talks about, is open-end funds. In essence, they are open

– money flows directly into the fund when investors buy and goes

directly out when they sell. The other type is closed-end funds, which

technically are not mutual funds. You’ll learn more about them in

Chapter 16.

With a mutual fund, the big pool of money we talked about previously is

managed by a company, which frequently the organization that started

the fund. This management company either serves as or hires the

fund’s investment advisor. The advisor employs a portfolio manager and

his or her research staff to select the investments for the mutual fund.

Mutual funds are subject to strict federal regulations. The fund broker or

other salesperson is required to give you a prospectus before you

invest. The prospectus is an important document that spells out the

investment objectives of the fund, risks, fees, and other important

information. You’ll learn more about what’s in a prospectus and what you

should look for in Chapter 9. The Securities and Exchange Commission

(SEC) is the U.S. government agency in charge of regulating mutual

funds.

Generally, mutual funds continuously offer new shares to the public.

They also are required legally to buy back outstanding shares at the

shareholder’s request. When you sell shares in a fund, you receive a

check based on its share’s price or net asset value (less any sales

charges, if applicable). The net asset value is obtained when the fund

figures the value of its investments, less liabilities, divided by the number

of shares outstanding at the end of the day.

Technobabble: The investment advisor is an organization hired by the

mutual fund company to manage a mutual fund’s investments. A

portfolio manager is the professional who actually manages the fund.

The investment objective describes what your mutual fund hopes to

accomplish. Assets represent any investment that the mutual fund

holds, including stocks, bonds, and cash reserves. A mutual fund share

is a unit of ownership in the fund. A mutual fund investor who owns

shares is called a shareholder and has voting rights.

Introducing: The Cast of a Mutual Fund

Like any company, the mutual fund management company is an

organization with a number of people that run the show. You want to

understand how this company works because you’ve entrusted it with

your hard-earned cash. Although mutual funds are set up under state

law, usually as corporations, they differ from other companies.

First, they are legally entitled to hire companies to handle the bulk of their

services. They typically hire the investment advisor, also known as an

investment advisory firm, to manage your mutual fund. They also make

arrangements to have the fund sold through a brokerage firm.

The following sections review the cast of characters who make a mutual

fund work.

The Investment Advisor

The investment advisor is one — or in some cases, a group — of the key

people in a mutual fund, including the portfolio manager(s) and

his/her/their staff. You’ve probably seen some portfolio managers on

TV’s “Wall Street Week,” spotted their quotes in magazines, or read

some of their books. This person selects, buys, and sells the

investments based on the fund’s investment objectives. The investment

advisor is paid an annual fee based on a percentage of the value of the

fund’s cash and investments, or assets.

The Board of Directors

A mutual fund has a board of directors to make major policy decisions

and oversee management. These are important people. The directors

steer the fund’s course, determining investment objectives and hiring out

help.

The Shareholder

Mutual fund investors are also known as shareholders. When you invest

in a mutual fund, you actually buy a share or portion of a mutual fund.

Each share has a price tag. If a fund sells for $10 a share and you invest

$1,000, you’re the proud owner of 100 shares of the fund! Mutual funds,

like many other companies, are very democratic. Because you own

shares in the fund, you have voting rights. As part owner, a shareholder

gets to vote in the election of the board of directors. The shareholder

must approve many operational changes within the fund, including

accounting procedures and the investment obj

Внимание, отключите Adblock

Вы посетили наш сайт со включенным блокировщиком рекламы!
Ссылка для скачивания станет доступной сразу после отключения Adblock!

Скачать