Mutual Funds 101 Part Two

By: Mallory Megan

In my first article in my series on mutual funds, I did not even get a chance to touch on the subject of mutual funds! I very quickly went over securities, which we agreed is something that represents money. I wrote about two types of securities, stocks and bonds. We talked about stock markets and bonds markets, and how if you wanted to invest in or sell stocks and bonds you are going to need the help of a dealer or broker.

Now let us talk about mutual funds. A mutual fund essentially pools money from a bunch of different investors and invests in different kinds of securities. Mutual funds will have a fund manager that purchases and sells the fund's investments. Under U.S. law, the Securities and Exchange Commission (SEC) and the Internal Revenue Service tell mutual funds that mostly all of their net income that they bring in has to be distributed to its investors at least once a year.

Mutual funds are structured as corporations or trusts, and the term mutual fund is another name for what the SEC classifies as an open end investment company. All being open ended means is that at the end of every day, the fund will issue new shares to investors that are interest in buying into the fund, and the fund is obligated to purchase shares back from investors redeeming their shares.

Most mutual funds are looked over by trustees or a board of directors who ensure that the fund is being managed properly and that it is being managed in the best interests of the fund's investors.

It is mandated that mutual funds must be registered with the SEC and they must give interested investors something called a prospectus that contains information about the fund, the securities it invests in and the fund manager. To Be Continued In Part Three

Article Source: http://yourfinance.co.za