US Capital Markets

Practical Mutual Fund Terms

  • An Open-End Fund issues new share without any limitations.  The fund will issue new shares to any investor interested in joining the fund.  Most mutual funds are open-end.
  • In a Closed-End Fund there area limited number of shares available.  The fund issues the shares upon its establishment, and never again issues new shares.  An investor interested in joining the fund must purchase outstanding shares from other investors interested in selling them.  Often, shares of closed-end funds are traded in stock markets.
  • Every fund decides on an Investment Objective.  All investments the fund makes are decided in light of that objective.  Typical investment objectives include “aggressive growth” and “constant income.”
  • The asset value of one share is called its Net Asset Value – NAV.  This statistic is updated at the end of every trading day and is published in the newspaper and on the Internet.  In and open-end fund, the NAV is affected by the price of the assets in the fund’s portfolio, while in a closed fund this value is also affected by factors of supply and demand for the fund itself. 
  • Many parties are involved in a mutual fund. These include:
    • A Custodian who holds the fund’s securities.
    • A Transfer Agent who maintains the records of the fund’s shareholders.
  • The Prospectus of a fund details the investment policy of the fund, the risks involved in joining it, past performance of the fund, details about the fund’s managers and the investment costs.
  • Every mutual fund provides its investors with an Annual Report.  The annual report presents the accomplishments of the fund over the previous fiscal year, and includes a broad detail of fund’s complete portfolio.
  • Some mutual funds have multiple Share Classes.  Generally, fees that are paid distinguish share classes from each other. In other cases, there might be one class of shares for institutional investors and another for private investors.
Practical Mutual Fund Terms580  Practical Mutual Fund Terms