Frequently Asked Mutual Fund Questions

By M. L. Williams in Mutual Funds on April 16th, 2008

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by M. L. Williams

Mutual funds are so popular nowadays that there are actually more mutual funds available than there are stocks of individual companies. Below we present some of the most popular questions about mutual funds along with some short answers to the questions.

How Long Have Mutual Funds Been Around?

The Wellington Fund, made up of both stocks and bonds, was started in 1928. However, the Wellington Fund was preceded by investment trusts (which is what mutual funds are technically) all the way back to the early 1800s in the Netherlands. Other funds were started in the United States in the later 1800s.

Are IRAs the Same as Mutual Funds?

Back in 1975, in the United States the IRS code was changed to allow people to contribute up to $2000 per year to an IRA (Individual Retirement Account). IRAs became very popular and many IRA’s are invested in mutual funds.

What is a No Load Mutual Fund

This type of fund is offered by an open-ended investment company that imposes no sales charge (load) on its shareholders. Investors buy shares in no-load funds directly from the fund companies, rather than through a broker, as is done in load funds.

What Makes a Mutual Fund?

A mutual fund is simply a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. The mutual fund will have a fund manager who is responsible for investing the pooled money into specific securities. When you invest in a mutual fund, you are buying shares of the mutual fund and thus you become a shareholder of the fund.

Index Funds - What Are They?

This type of fund tracks one of the stock market indexes, whether it is the Standard & Poor’s 500 Stock Index, the entire stock market index, or some other performance measure of a like group of stocks.

What Is Net Asset Value?

For most of the funds, the NAV is determined daily, after the close of trading on some specified financial exchange, but some funds update their NAV multiple times during the trading day. Net Asset Value (NAV) is the value of a share in a mutual fund and is calculated by dividing the total value of the fund, less the fund’s liabilities, by the number of shares currently issued and outstanding.

Top Mutual Fund Questions Of 2008 - What Is A Public Offering Price?

Open-end funds sell shares at the POP and redeem shares at the NAV, and so process orders only after the NAV is determined. Closed-end funds may trade at a higher or lower price than their NAV; this is known as a premium or discount, respectively. If a fund is divided into multiple classes of shares, each class will typically have its own NAV, reflecting differences in fees and expenses paid by different classes. A Public Offering Price (POP) is nothing more than the net asset value plus a sales commission.

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