WHAT IS A MUTUAL FUND AND HOW DOES IT WORK?

A mutual fund is a fund that raises money from investors to invest in stocks, bonds, and other securities. It is a package made up of several individual investments. When those investments gain or lose value, you gain or lose as well. When they pay dividends, you get a share of them. Mutual funds also offer professional management and diversification. They do much of your investing work for you.

Mutual funds may be open-end or closed-end funds.

The term "mutual funds" is used most often to mean open-end funds. Open-end funds issue new shares continuously as investors buy them. Investors redeem their shares directly to the fund, which in turn must buy them back.

Closed-end funds issue a fixed number of shares that the funds may redeem only upon termination of their trusts. Shareholders in a closed-end fund may, however, sell their shares through a broker on the secondary market to other investors, but not back to the fund.

This tutorial will focus on open-ended funds.

To learn how to buy into a mutual fund, click "Next" and begin reading.