A mutual fund is a professionally managed mutual fund that pools money from many investors to purchase securities. Mutual funds have advantages and disadvantages compared to direct investing in individual securities. The primary advantages of mutual funds are that they provide a higher level of diversification, they provide liquidity, and they are managed by professional investors. On the negative side, investors in a mutual fund must pay various fees and expenses. Primary structures of mutual funds include open-end fundsunit investment trustsand closed-end funds. Exchange-traded funds ETFs are open-end funds or unit investment trusts that trade on an exchange. Mutual funds are also classified by their principal investments as money market fundsbond or fixed income funds, stock or equity funds, hybrid funds or other. Funds may also be categorized as index fundswhich are passively managed funds that match the performance of an index, or actively managed funds. Hedge pdf are not mutual funds; hedge funds cannot be sold to the general public and are subject to different government regulations. The first modern investment funds the precursor of today's mutual funds were established in the Dutch Republic. In response to the financial crisis of —, Amsterdam-based businessman Abraham or Adriaan van Ketwich formed a trust named Eendragt Maakt Magt "unity creates strength". His aim was to provide small investors with an opportunity to diversify. Mutual funds were introduced to the United States in the s. The first open-end mutual fund with redeemable shares was established on March 21, as the Massachusetts Investors 6th. It is still in existence today and is now managed by MFS Investment Management. In the United States, closed-end funds remained more popular than open-end funds throughout the s. After the Wall Street 6th ofthe U. Congress passed a series of acts regulating the securities markets in general and mutual funds in particular. These new regulations encouraged the development of open-end mutual funds as opposed to closed-end funds. Growth in the U. The introduction of money market funds in the high interest rate environment of the late s boosted industry growth dramatically. The first retail index fundFirst Index Investment Trust, was formed in by The Vanguard Groupheaded by John Bogle ; it is now called the "Vanguard Index Fund" and is one of the world's largest mutual funds. Fund industry growth continued into the s and s. Inthe mutual fund industry was involved in a scandal involving unequal treatment of fund shareholders. Some fund management companies allowed favored investors to engage in late tradingwhich is illegal, or market timingwhich is a practice trading by fund policy. The scandal was initially discovered by former New York Attorney General Eliot Spitzer and led to a significant increase in regulation. Total mutual fund assets fell in as a result of the financial crisis of — In the United States, mutual funds play an important role in U. Their role in retirement savings was even more significant, since mutual funds accounted for roughly half of the assets in individual retirement accounts, mutual s and other similar retirement plans. Luxembourg and Ireland are the primary jurisdictions for the registration of UCITS funds. These funds may be sold throughout the European Union and in other countries that have adopted mutual recognition regimes. Mutual edition have advantages and disadvantages compared to investing directly in individual securities: Open-end and closed-end funds are overseen by a board of directorsif organized as a corporation, or by a board of trusteesif organized funds a trust. The Board must ensure that the fund is managed in the interests of the fund's investors. The board hires the fund manager and other service providers to the fund. The fund sponsors trades buys and sells the fund's investments in accordance with the fund's investment objective. Funds that are managed by the same company under the same brand are known as a fund family or fund complex. The sponsor or fund management company, often referred to as the fund manager, trades buys and sells the fund's 6th in accordance with the fund's investment objective. A fund manager must be a registered investment adviser. In the European Union, funds are governed by laws and regulations established by their home country. However, the European Union has established a mutual recognition regime that allows funds regulated in one country to be sold in all other countries in the European Union, but only if they comply with certain requirements. The 6th establishing this regime trading the Undertakings for Edition Investment in Transferable Securities Directiveand funds that comply with its requirements are known as UCITS funds. Regulation of mutual funds in Canada is primarily governed by National Instrument "Mutual Funds. The Canadian Securities Administrator works pdf harmonize regulation across Canada. In Taiwan, funds funds are regulated by the Financial Supervisory Commission Mutual. There are three primary structures of mutual funds: Open-end mutual funds must be willing to buy back "redeem" their shares from their investors at the net asset value NAV. In the United States, open-end funds must be willing to buy back shares at the end of every business day. In pdf jurisdictions, open-funds may only be required to buy back shares at longer intervals. For example, UCITS funds in Europe are only required to accept redemptions twice each month though most UCITS accept redemptions daily. Most open-end funds also sell shares to the public every business day; these shares are priced at NAV. Most mutual funds are open-end funds. Closed-end funds generally issue shares to the public only once, when they are created through an initial public offering. Their shares are then listed for trading on a stock exchange. Investors who want to sell their shares must sell their shares to another investor in the market; they cannot sell their shares edition to the fund. The price that investors receive for their shares may be significantly different from NAV; it may be at a "premium" to NAV i. Unit investment trusts UITs are issued to the public only once, when they are created. UITs generally have a limited life span, established at creation. Investors can redeem shares directly with the fund at any time similar to an open-end fund or wait to redeem them upon funds trust's termination. Less commonly, they can sell their shares in the open market. Unlike other types of mutual funds, unit investment trusts do not have a professional investment manager. Their portfolio of securities is established at the creation of the UIT. Exchange-traded funds ETFs are structured as open-end funds companies or UITs. ETFs combine characteristics of both closed-end funds and open-end funds. ETFs are traded throughout the day on a pdf exchange. An arbitrage mechanism is used to keep the trading price close to net asset value of the ETF holdings. Mutual funds are normally classified by their principal investments, as described in the prospectus and investment objective. The four main categories of funds are money market funds, bond or fixed income funds, stock or equity funds, and hybrid funds. Within these pdf, funds may be subclassified by investment objective, investment approach or specific focus. The types of securities that a particular fund may invest in are set forth in the fund's prospectusa legal document which describes the fund's investment objective, investment approach and permitted investments. The investment objective describes the type of income that the fund seeks. For example, a capital appreciation fund generally looks to earn most of its returns from increases in the 6th of the securities it holds, rather than from dividend or interest income. The investment approach mutual the criteria that the fund manager uses to select investments for the fund. Bond, stock, and hybrid mutual may be classified as either index or passively-managed funds or actively trading funds. Money market funds invest in money market instruments, which are fixed income securities with a very short time to maturity and high credit quality. Investors often use money market funds as a substitute for bank savings accountsthough money market funds are not insured by the government, unlike bank savings accounts. Other money market funds must compute a net asset value based on the value of the securities held in the funds. Bond funds invest in fixed income or debt securities. Bond funds can be sub-classified according to:. Stock, or equity, funds invest in common stocks. Stock funds may focus on a particular area of the stock market, such as. Hybrid funds invest in both bonds and stocks or in convertible securities. Balanced funds, asset allocation funds, target date or target risk funds, and edition or lifestyle funds are all types of hybrid funds. Hybrid funds may be structured as funds of fundsmeaning that they invest by buying shares in other mutual funds that invest in securities. Many funds of funds invest in affiliated funds meaning mutual funds managed by the same fund sponsoralthough some invest in unaffiliated funds i. Investors in a mutual fund pay the fund's expenses. Some of these expenses reduce the value of an investor's account; others are paid by the fund and reduce net asset value. Funds management fee is paid by the fund to the management company or sponsor that organizes the fund, provides the trading management or investment advisory services and normally lends its brand to the fund. The 6th manager may also provide other administrative services. The management fee often has breakpoints, which means that it declines as assets in either the specific fund or in the fund family as a whole increase. The fund's board reviews the management fee annually. Fund shareholders must vote on any proposed increase, but the fund manager or trading can agree to waive some or all of the management fee in order to lower the fund's expense ratio. Distribution charges pay for marketing, distribution of the fund's shares as well as services to investors. There trading three types of distribution charges. A mutual fund pays expenses related to buying or selling the securities in its portfolio. These expenses may include brokerage commissions. These costs are normally positively correlated with turnover. Shareholders may be required to pay fees for certain transactions, such as buying or selling shares of the fund. For example, a fund may charge a flat fee for maintaining an individual retirement account for an investor. Some funds charge redemption fees when an investor sells fund shares shortly after buying them usually defined as within 30, 6th or 90 days of purchase ; redemption fees are computed as a percentage of the sale amount. Shareholder transaction fees are not part of the expense ratio. The expense ratio equals recurring fees and expenses charged to the fund during the year divided by average net assets. The management fee and fund services charges are ordinarily included mutual the expense ratio; front-end and back-end loads, securities transaction fees and shareholder transaction fees are normally excluded. To facilitate comparisons of expenses, regulators generally require that funds use the same formula to compute the expense ratio and publish the results. In the United States, a fund that calls itself " no-load" cannot charge a front-end load or back-end load under any circumstances and cannot charge a distribution and services fee greater than 0. Critics of the fund industry argue that fund expenses are too funds. They believe that the market for mutual funds is not competitive and that there are many hidden fees, so edition it is difficult for investors to reduce the fees that they pay. They argue that trading most effective way for investors to raise the returns they earn from mutual funds is to invest in funds with low expense ratios. Fund managers counter that fees are edition by a highly competitive market and, therefore, reflect the value that investors attribute to the service provided. They also note that fees are clearly disclosed. Mutual funds in the United States are required to report the average annual compounded rates of return for one- five-and ten year-periods using the following formula: Market capitalization equals edition number of a company's shares outstanding multiplied by the market price of the stock. Market capitalization is an indication of the size of a company. Typical ranges of market capitalizations are:. A fund's net asset value NAV equals the current market value of a fund's holdings minus the fund's liabilities. This figure may also be referred to as the fund's pdf assets". It is usually expressed as a per-share amount, computed by pdf net assets by the number of fund shares outstanding. Funds must compute their net asset value according to the rules set forth in their prospectuses; most compute their NAV at the end of each business day. Valuing the securities held in a fund's portfolio is often the most difficult part of calculating net asset value. The fund's board typically oversees security valuation. A single mutual funds may give investors a choice mutual different combinations of front-end loads, back-end loads and distribution and services fee, by offering several different types of shares, known as share classes. All of them invest in the same portfolio of securities, but each has different expenses and, therefore, a different net asset value trading different performance results. Some of these share classes may be available only to certain types of investors. Typical share classes for funds sold through brokers or other intermediaries in the United Sates are:. Turnover is a measure of the volume of a fund's securities trading. It is expressed as a percentage of average market value of the portfolio's long-term securities. Turnover is the lesser of a fund's purchases or sales during a given year divided by average long-term securities market value for the same period. If the period is less than a year, turnover is generally annualized. From Wikipedia, the free encyclopedia. Mutual fund fees and expenses. Active management Fund derivative Global assets under management Index fund Lipper average List of mutual-fund families in Canada List of mutual-fund families in the United States List of U. The Origins of Value: The Financial Innovations that Created Modern Capital Markets. Geert Rouwenhorst December 12,"The Origins of Mutual MutualYale ICF Working Paper No. The Rise of Mutual Funds. How Your Money is Managed Second Edition. Registration Form Used by Open-End Management Investment Companies: Sample Form and instructions". Securities and Exchange Commission SEC. Stock fund Bond fund Money market fund. Real estate investment trust Private equity fund Venture capital fundMezzanine investment fundsVulture fund Hedge fund. 6th fund Target date fund Growth fund Value fund Income fund Sector fund Balanced fund Asset allocation fund Fund of funds. Long-only fund Stable value fund. Mutual fund Open-end fund Exchange-traded fund Closed-end fund Real estate investment trust. Hedge fund Private equity fund Pooled income fund Endowment fund Pension fund Sovereign wealth fund Sovereign investment fund. Absolute return Total return. Alternative investments Traditional investments Net asset value Assets under management Rate of return Time-weighted return Money-weighted rate of return. Common contractual fund Exchange-traded fund Fond commun de placement Fund of funds Index fund Investment trust Hedge fund Listed investment company Mutual fund Offshore fund Open-ended investment company Pension Fund Private equity fund Real estate investment trust Royalty trust SICAV Umbrella funds Unit investment trust Unit trust Unitised insurance fund. Closed-end fund Efficient-market hypothesis Net asset value Open-end fund. Alternative investment Asset management firms Robo-advisor Returns-based style analysis Traditional investments UCITS. Economic history of the Netherlands. Amsterdam Stock Exchange Bank of Amsterdam Amsterdamsche Wisselbank Brabantsche Compagnie Compagnie van Verre Dutch East India Company Dutch West India Company New Netherland Company Noordsche Compagnie. De Nederlandsche Bank Stichting Max Havelaar. Pieter de la Edition Joseph de la Vega Louis De Geer Gerard Adriaan Heineken Isaac Le Maire Johan Palmstruch Anton 6th Gerard Mutual Nico Roozen Coenraad Johannes van Houten Frans van der Hoff A. 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Financial markets Financial capitalism Pdf revolution International financial centres global financial centres Economic growth Economic boom Economic miracle Economic bubble financial bubblespeculative bubble Stock market crash Deindustrialization. Violet Barbour Fernand Braudel Reuven Brenner Jan de Vries William N. Goetzmann Jonathan Israel Deirdre McCloskey K. Geert Rouwenhorst Jacob Soll Edward Stringham Richard Sylla Peter J. Hollander beater ; Wind-powered sawmill. Financial history of the United Kingdom ; History of the British national debt ; History of British financial markets ; Bank of England ; Cornelius Vermuyden ; Bernard Mandeville. Early industrialization in Sweden ; History of European banknotes ; Bank of Sweden ; Johan Palmstruch ; Louis De Geer. History of the South African wine industry. Retrieved from " https: Mutual fund families Mutualism movement Institutional investors Investment funds Dutch inventions Investment companies Economic history of the Netherlands. 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What are Mutual Funds, Index Funds, & ETF's and How to Evaluate Them
What are Mutual Funds, Index Funds, & ETF's and How to Evaluate Them
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