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Mutual Fund Basics

Mutual Funds are a group of investments administered by a manager who is hired by a group of people with similar investment goals. They are available in both open and closed end funds.

Closed End Mutual Funds – Issue a set number of shares. The price of the shares fluctuates daily depending on the value of the securities and the market psychology.

Open End Mutual Funds – Have an unlimited number of shares and the daily price is determined by the total value of the securities divided by the number of shares. T.Rowe Price, Fidelity and Vanguard sell open-end funds.

Types of Mutual Funds

  • Money Market Fund – Securities that mature in 1 year or less, typically in 30 to 45 days. Most Funds keep the value of one share at $1.
  • Bond Funds – There are two types: Corporate & Government Bond Funds – Use High Quality bonds and High Yield Bond Funds – Invest in junk bonds
  • Municipal/Tax Free Bond Funds
  • Balanced Funds – Own both Stock & Bonds
  • Stock Funds

Advantage / Disadvantage of Mutual Funds

Advantage Disadvantage
Diversification Potential high cost
Professional management Tax control will be lost
Liquidity Overwhelming choices

How to select Mutual Funds >

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