How Mutual Funds Work
Mutual funds pool money from many investors to buy a diversified portfolio of stocks, bonds, or other securities. They're one of the most popular investment vehicles for retirement accounts.
The Basics
When you buy shares of a mutual fund, your money is combined with thousands of other investors. A professional fund manager uses this pool to buy a diversified mix of investments. You own a proportional share of everything in the fund.
Net Asset Value (NAV)
Mutual funds are priced once per day at market close. The NAV is calculated by dividing total assets minus liabilities by the number of shares. Unlike stocks, you can't trade mutual funds throughout the day. All orders execute at the closing NAV.
Minimum Investments
Many mutual funds require minimum initial investments, often $1,000-$3,000. Some have lower minimums for retirement accounts. This is different from ETFs, which you can buy one share at a time.
- Mutual funds pool investor money to buy diversified portfolios
- NAV is calculated once daily with no intraday trading
- Most funds have minimum investment requirements
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