Mutual Fund Basics
A mutual fund pools the money of people who have a similar investment objective, such as long-term growth or income. When you buy shares in a mutual fund, you and the other investors participate in the gains and losses of the fund’s investments.
The fund’s investment advisor manages the fund and invests in securities that are designed to meet the fund’s investment objective. Depending on the fund’s goals, these securities may include:
At the inception of a mutual fund, the investment advisor purchases a variety of securities that meet the fund’s objective. All of the fund’s investors then own a proportionate share of each security based upon the size of their investment. When mutual fund investors are ready to sell their shares, the fund is required to pay an amount equal to the fund’s net asset value for each share redeemed subject to the terms of the prospectus. Net asset value, or NAV, refers to a mutual fund’s price per share. The NAV typically is computed once a day based on the closing market prices of the securities in the fund’s portfolio.
A mutual fund can gain value when the securities it owns pay interest or dividends or when the securities themselves rise in value, but a fund can also lose value.
The advantages of mutual funds include:
Most financial professionals suggest that investors diversify their portfolios by investing across several types of investments. Which mix is right for you? That depends on a number of things — including your investment time horizon, risk tolerance and financial circumstances. American Funds offers funds with an array of investment objectives to help you and your financial professional build a portfolio tailored to your needs.
Investments are not FDIC-insured, nor are they deposits of or guaranteed by a bank or any other entity, so they may lose value.
Investors should carefully consider investment objectives, risks, charges and expenses. This and other important information is contained in the fund prospectuses and summary prospectuses, which can be obtained from a financial professional and should be read carefully before investing.