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Saturday, August 23, 2008

Definition of Mutual Funds

From The Hoss's Mouth

So just what is the definition of a mutual fund? Hoss Cents Free Financial Money Magazine explores the definition of one of the most popular investments tools available to today's investors: mutual funds .


Simply put, a mutual fund is a tool that permits a number of investors to form a pool of money to buy bonds, stocks or other types of securities according to a predetermined investment objective.

Mutual Funds are open-ended funds and can be bought and/or sold at any time by new and current investors of the fund in accordance with the NET ASSET VALUE per SHARE (NAVS). NAVS are calculated by subtracting the fund's liabilities from its assets and dividing by the total number of shares. This calculation is done each and every trading day.

In addition to providing the definition of mutual funds, The Hoss has compiled a list of positions you should be familiar with, as there are many people involved in the operation and organization of a mutual fund:

  • Mutual Fund Manager: Markets and oversees the administration of a Mutual Fund(s)
  • Portfolio Adviser: Directs the fund's investments. Often the Mutual Fund Manager and Portfolio Adviser is the same person.
  • Principal Distributor: Responsible for the sale of the fund to investors.
  • Custodian: The Mutual Fund Manager appoints a bank or trust company to hold all of the fund's securities.
  • Transfer Agent And Registrar: Maintains the resister of the fund's unit holders.
  • Auditor: Each year, performs an audit of the fund and compiles a report on the financial statements of the fund.

Now that you are familiar with the definition of mutual funds, The Hoss now will turn his attention to the question that all new mutual fund investors ask: How do I make money from a mutual fund?

You, the Mutual Fund Investor, profit when you receive distributions from interest, dividends or capital gains that the fund has earned. You also profit when the NAVS of your fund increase in value.

On the flip side, you could also experience a loss if your fund's NAVS decrease and the decrease exceed any interest, dividends or capital gains the fund earns.

The next several posts of Hoss Cents Free Financial Money Magazine will concentrate on mutual fund costs, the various types of mutual funds, the different investment strategies employed by each, and the advantages and disadvantages of investing in mutual funds.

The Hoss welcomes you to the world of mutual fund investing and hopes you benefit from this post on the definition of mutual funds.

Stay on track,

The Hoss

1 comment:

  1. Thanks for sharing...
    I have enjoyed reading in here.
    I will try to visiting this blog very often

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