Term of the Day: Mutual Fund

An open-ended fund operated by an investment company which raises 
money from shareholders and invests in a group of assets, in
accordance with a stated set of objectives. Mutual funds raise money
by selling shares of the fund to the public, much like any other
type of company can sell stock in itself to the public. Mutual
funds then take the money they receive from the sale of their
shares (along with any money made from previous investments) and use
it to purchase various investment vehicles, such as stocks, bonds
and money market instruments. In return for the money they give to
the fund when purchasing shares, shareholders receive an equity
position in the fund and, in effect, in each of its underlying
securities. For most mutual funds, shareholders are free to sell
their shares at any time, although the price of a share in a mutual
fund will fluctuate daily, depending upon the performance of the
securities held by the fund. Benefits of mutual funds include
diversification and professional money management. Mutual funds
offer choice, liquidity, and convenience, but charge fees and often
require a minimum investment. A closed-end fund is often incorrectly
referred to as a mutual fund, but is actually an investment trust.
There are many types of mutual funds, including aggressive growth
fund, asset allocation fund, balanced fund, blend fund, bond fund,
capital appreciation fund, clone fund, closed fund, crossover fund,
equity fund, fund of funds, global fund, growth fund, growth and
income fund, hedge fund, income fund, index fund, international fund,
money market fund, municipal bond fund, prime rate fund, regional
fund, sector fund, specialty fund, stock fund, and tax-free bond
fund.