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Mutual Funds Investing

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									Mutual Funds Investing
Mutual Funds
Mutual funds are financial intermediaries that collect funds from
individual investors and invest these funds in various kinds of
securities and/or other assets. Investing in mutual funds provides the
benefits of large-scale investing to the small investor. By investing in
an investment company, the investor contributes to the pool of assets
created by the investment company. The investor's claim in the portfolio
established by the investment company is proportional to the amount
invested.
While all investment companies pool assets of individual investors, they
also need to divide claims of those assets among those investors. By
investing in investment companies, the investors buy shares in these
companies and ownership is proportional to the number of shares
purchased. The value of each share is called the net asset value or NAV.
Net asset value equals assets minus liabilities expressed on a per-share
basis.
Open-end and Closed-end Mutual Funds
By investing in open-ended mutual funds, the investors have an option to
"cash out" their shares at the net asset value at any time. They can also
buy new shares. Open-end funds can be redeemed or issued readily at their
net asset value. Therefore, the unit capital of an open-ended fund keeps
varying over time. The term "mutual funds" refers to open-end mutual
funds only.
In contrast, by investing in closed-end mutual funds, the investors do
not get to redeem their shares all the time. They can get it done only on
maturity. New shares too wont be issued. The investors can, however, cash
out by selling their shares to other investors. Shares of closed-end
funds are traded on organized exchanges and can be purchased through
brokers. Their prices can differ from their net asset value. Hence the
closed-end funds are less popular when compared to open-ended funds.
Therefore, investing in open-ended funds is better than investing in
closed-ended funds.
To know more about investing in mutual funds visit Investing in Mutual
Funds and to understand how mutual funds work visit Mutual Funds.

								
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