Devoted to understanding the basics and fundamentals of investing

What is a mutual fund? A mutual fund is a company that pools money from many investors and invests the money into stocks, bonds, money market, or other securities. Mutual funds are unique in that investors are able to purchase mutual fund shares from the company itself, but not from other investors or on the secondary market. The price the investor must pay for the mutual fund is the fund's approximate per share net asset value, or NAV, plus any shareholder fees that are imposed at the time of purchase.  

Mutual fund shares are redeemable at any time. An investor can sell the shares to their mutual fund, and the fund will be sold at the close of the stock market on the same day. Some mutual funds become too large, and stop selling shares of their fund to the public, but sometimes continue allowing the sale of their shares for retirement accounts.

There are three basic types of fees that most mutual funds have: management fees, nonmanagement expense, and 12b-1 fees. 12-b1 fees are generally the charges related to the marketing expenses of the fund. There are several types of mutual funds: equity funds, exchange-traded funds, open-ended funds, bond funds, money market funds, fund of funds, and hedge funds. Equity funds are the most prevalent, though hedge funds have been growing rapidly in recent years.

Inside the equity fund umbrella there are several categories of funds. There are large cap funds, mid cap funds, small cap funds, and micro cap funds. Inside these categories there are also growth stock funds, value stock funds, blended funds, and short or bear funds. Bear funds bet against the market and take short positions on a constant basis.

Mutual funds are a great way to invest in the stock market, especially for beginners. Diversifying through different categories of funds is always a good idea. In the future we will revisit mutual funds quite often to look at some of the most successful mutual funds over the past few years.