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Q&A with WrightStock |
| There are currently more mutual
funds than there are stocks! Mutual funds are more popular than ever, but can sometimes be
confusing. What are they? What’s a no-load fund? What’s a closed end fund? These
are just some of the questions that we will answer for you to help you understand the
mutual fund market. |
| What is
a mutual fund? |
| A mutual fund is a pool of financial
securities. Funds can be made up of stocks, bonds or other financial instruments.
Investors buy shares in the mutual fund, which entitles them to a portion of the
securities in the fund. Mutual funds have portfolio managers who make the
decisions to buy and sell securities in the funds. These managers must make decisions that
are consistent with the mutual fund’s stated objective. For example, a funds
objective may be to only buy large stocks or only buy U.S. bonds. |
| What are
open-end and closed-end funds? |
| Open end mutual funds issue new
shares when anyone buys into the fund and redeems shares whenever anyone sells. For
example, if all shareholders in an open end fund decided to sell their shares, the fund
manager would have to liquidate all investments and redeem the investor’s shares. Closed-end
funds trade like stocks. They have a fixed number of shares and the price of the shares
can be higher or lower than the value of the underlying securities in the fund. The
advantage of closed end funds is that the portfolio manager will never be forced to sell
the securities in the fund to meet redemptions. |
| What is
the difference between load and no-load funds? What other types of fees will my fund
charge? |
| Load funds are funds are funds that
charge sales commissions and no-load funds do not. There are several high quality no-load
funds and it is always a good idea to search for a fund that meets your objectives and
does not charge a sales commission. All mutual funds will charge
investment advisor (IA) fees. These are the fees that allow the fund company to recover
their expenses and make a profit. Some funds will charge 12b-1 fees. These are fees for
specific fund marketing expenses.
Make sure to look at all of the fees that your fund charges. Before you invest,
compare the fee structure and the returns of several funds in the fund category that you
are examining. For example, compare fees of equity index funds to fees of other equity
index funds. Do not compare fees for an equity index fund to fees for a bond fund. These
fees will be disclosed in the fund prospectus that the mutual fund company will provide to
you. This information is also available on several internet sites which are specifically
designed for mutual funds. |
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