Mutual funds

Mutual funds

• refers to a fund operated in the form of a corporation
• The value of the mutual fund company depends on the performance of the securities it decides to buy. 
• So, when you buy a unit or share of a mutual fund, you are buying the performance of its portfolio or, more precisely, a part of the portfolio's value.
• Just as a person who holds shares in Company A has the right to operate Company A as much as his or her shares, so a mutual fund investor has the right to operate as much as the shares invested in the mutual fund
• In contrast, common funds are contractual
• Pool money from the investing public and use that money to buy other securities, usually stocks and bonds. 
• Investing in a share of a mutual fund is different from investing in shares of stock. 
• Unlike stock, mutual fund shares do not give its holders any voting rights. 
• A share of a mutual fund represents investments in many different stocks (or other securities) instead of just one holding.
• The average mutual fund holds over a hundred different securities, which means mutual fund shareholders gain important diversification at a low price. 
• Consider an investor who buys only Google stock before the company has a bad quarter. He stands to lose a great deal of value because all of his dollars are tied to one company. 
• On the other hand, a different investor may buy shares of a mutual fund that happens to own some Google stock. When Google has a bad quarter, she loses significantly less because Google is just a small part of the fund's portfolio.