Mutual Fund Education Center This section covers mutual fund education designed to help
beginners and professionals alike. There are many aspects of mutual funds an investor should understand before
a mutual fund purchase is made. The information below provides a basic introduction to mutual funds.
What is a Mutual Fund?
A mutual fund company pools the money of many investors and invests it for them in a collection of
securities by purchasing stocks, bonds, money markets and/or other securities. These securities are
often referred to as holdings and all of the fund's holdings combined make up the portfolio. The assets in
a mutual fund's portfolio are managed by a professional money manager(s) who decides which securities to buy and
sell based on the fund's investment objective, detailed in the fund's prospectus.
When you invest in a mutual fund, you are actually buying shares in the fund, which means you own a small percentage
of the fund's entire portfolio. These shares are a fractional representation of the entire mutual fund's diversified
holdings. The price of a share at any time is called the fund's net asset value, or NAV. If you invest
$1,000 in a mutual fund with an NAV of $24.75, you will receive 40.40 shares of that fund. (Unlike stocks, you
can own fractional shares in a mutual fund). When the value of the portfolio increases, the value of your
investment also increases. If, however, the value of the fund decreases, your investment value will decrease as
well.
The primary asset categories found in mutual funds are money markets, bonds, and/or stocks. Mutual funds
may invest in a single asset class or a combination of all. Maintaining the weight of each category and the
decision on when to buy or sell is the function of the mutual fund's manager(s). Typically, the fund category
indicates the primary investments (holdings) of the fund. For example, a fund that holds 85% stocks, 10% bonds
and 5% cash equivalents is typically categorized as a stock fund.
