What is a Mutual Fund?
When you invest in a mutual fund, you're pooling your money with other investors with similar investment goals to gain access to stocks and bonds. You're not buying individual stocks or bonds, but rather a share of ownership in the collective portfolio. Professional investment managers then invest these assets in securities that they've carefully researched and analyzed and that they believe will best achieve the fund's objectives. Funds have different objectives and/or styles, such as growth or value, which affect the types of securities it buys. Knowing a fund's objective can help you decide whether or not it would be right for you and your goals. Why use mutual funds instead of buying individual stocks or bonds? Most people don't have the resources it takes to amass broadly diversified portfolios on their own - or the time and expertise it takes to manage them effectively. When you invest in a mutual fund, you benefit from:
- Diversification - Mutual funds typically are diversified across a wide range of holdings, which means that losses from any single investment shouldn't have a major impact on the portfolio. Diversification can reduce volatility while pursuing returns over the longer term.
- Management Expertise - Expert fund managers handle research, analysis and trading of the fund.
What is a NAV?
When you invest in a mutual fund, the cost of a fund share is called the net asset vale (NAV). So, if you were to invest $1,000 in a fund with a NAV of $25, you would own 40 shares. The NAV is calculated at the close of business each day (at the usual 4pm close of the NYSE).
Investors should consider the investment objectives, risks, charges, and expenses of the fund carefully before investing. Download a prospectus, or summary prospectus, if available, that contains this and other information about the fund, and read it carefully before investing.