A mutual fund is a type of Investment Company that pools money from many investors and invests the money in stocks, bonds, money-market instruments, other securities, or even cash.
The manager invests this money then continues to buy and sell stocks and securities according to the style dictated by the fund’s prospectus.
There are several important aspects of mutual funds:
1. Investors in mutual funds own a pro rata share of overall portfolio
2. The investment manager
of the
mutual
fund actively
manages the
portfolio, that is buys some securities and sells others
3. The value or price of each share of portfolio, called Net Asset Value (NAV), equals the market value of the portfolio minus the liabilities of the mutual fund divided by the number of shares owned by the mutual fund investors.
4. The NAV or price of the fund is determined only once each day, at the
close of the day
5. All new investments into the fund or withdrawals from the fund during a day are priced at the closing NAV