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| Home > Education and Planning > Investor Education |
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| Mutual Funds 101: UNDERSTANDING the Basics |
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If you had $100 to invest, would you be able to invest that amount in 150 individual companies? The answer would typically be a resounding no! In fact, brokerage fees and commissions would probably amount to much more than your investment. By putting that money in a mutual fund, you can invest in as many as 300 companies or more with one deposit.
A mutual fund is a pool of stocks (or equities as they’re often called), bonds and cash instruments that are sold in shares. As each investment is made into the fund, new shares are issued to the investor.
When you purchase a mutual fund, you are combining your money with other investors’ money, all of which is managed by a professional money manager. The money manager uses investors’ cash to purchase securities, such as stocks and bonds. Additionally, this professional management provides advantages like expert research and investment selection, low costs and convenience.
Moreover, mutual funds offer diversification. That is, your investment dollars are spread across a number of stocks and bonds. This way, the fund may be able to offset a drop in the value of one of its investments with a gain in another.
Mutual fund shares fluctuate with the rise and fall of the total of the investments in the mutual fund. As the prices of the stocks or bonds in the mutual fund rise, your share price will typically increase, too. As investment prices fall, most likely the value of your mutual fund investment will go down accordingly.
Each day, the Net Asset Value (NAV), or fund price, is adjusted to account for the previous day’s market activity. To get the daily NAV, you start with the current market value, subtract any management expenses, and divide the total by the outstanding shares. Luckily, you don’t have to figure this out on your own -- mutual fund companies provide this information for their shareholders on a daily basis.
Additionally, fund companies are required annually to distribute any income earned over the year including realized capital gains. Typically, these are generated from dividends paid out from company stocks and from sales of stocks at a price higher than which they were originally purchased. These distributions are paid to all shareholders of the mutual fund based on the number of shares owned. As a shareholder, you have the option of receiving distributions in cash or having them automatically reinvested in additional shares of the mutual fund. And, unless your fund investment is in a tax-free or tax-deferred account, distributions must be treated as taxable income on your tax return.
There are several different types of mutual funds from which to choose, ranging from aggressive growth funds to conservative funds. What’s right for you depends on your investment goals, time horizon and risk tolerance. Enterprise Fund Distributors offers a variety of funds to help you round out your investment portfolio. If you don’t know which funds are best for you, talk with a financial professional who can tailor an investment strategy to suit your financial situation and long-term investment needs.
Investors should consider a fund's investment objectives, risks, charges and expenses carefully before investing. For this and other information about The 787 Fund and AXA Enterprise Funds, download a prospectus, ask your financial advisor for a copy, or call 1-800-432-4320. Please read a prospectus carefully before you invest or send money.
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