How No-Load Mutual Funds Work [mutualfundsdescription]

How No-Load Mutual Funds Work [mutualfundsdescription]

Investors are often advised to put their money into mutual funds. MoneyWatch's Jill Schlesinger explains fund management, pricing, and more.

http://title24plancheck.com How Mutual Funds Work

As The New York Times reported last week, JPMorgan's team of financial advisers are being asked to steer their clients to invest in the bank's own proprietary funds even when they're more costly than those offered by other firms or their performance ... The Real Shame in JPMorgan's Shady Mutual Fund Sales

Do it yourself with no-load mutual funds and save thousands. Here's how it works.

To make things real simple, think of joining an investment club where professionals make the investment decisions for you and deal with all of the hassles and other details of running the fund. There is a minimum investment requirement of maybe $ 2000 or so, but after that you pretty much invest what you want and when you want. Each fund has its own minimum investment requirements.

When you want some or all of your money back ... no problem, no charge.

Here's the traditional way to get started. Call the fund company toll-free and tell them you would like to get started as a mutual fund investor. For example, you might tell them that you are thinking about opening an IRA and perhaps a joint account with your spouse.

They will send you general info about their funds and the appropriate applications to fill out.

If you have a special interest in stock funds, for example, let them know. If you have any problems with the paperwork, call them back and they will walk you through it.

Check out their web site and do some homework before you make any decisions, and start small if that makes you more comfortable. Now, here's how it works. You send them the required paperwork with a check. Within a few days you have an account open and are a member of the club.

Let's say that you are investing in a stock fund, and they process your application on a Tuesday. You sent them $ 5000 and at the market close on Tuesday the fund closed at $ 10 per share. In mutual fund language, the net asset value (NAV) was $ 10 a share. You now own 500 shares of a stock mutual fund.

How do they figure the NAV? Let's say that at the end of the trading day on Tuesday the fund's net assets (the net value of the fund's investment assets) were $ 1 billion, and there were 100 million shares held by investors.

That makes each share worth $ 10.

When investors add money net assets go up, and so do the number of shares. When the investments in the portfolio go up in value or pay interest or dividends the value of the fund and NAV increase. When investors pull money out the assets under management decrease and so do the number of shares. If the fund's investments go down in value the NAV or share price falls.

Over time your mutual fund is likely to pay dividends and/or capital gains. Since most investors want to keep their money working for them, they simply tell the fund (in the application) to reinvest this income. In other words, buy more shares with it. They then handle the details automatically as long as you own shares. There is no charge for this service.

Every mutual fund charges investors for yearly expenses, including no-load funds. Depending on the fund, these expenses can cost you more than 2% a year, or less than one-half of 1%.

The truth is you won't even know it as you pay these expenses. The fund company simply takes this money from the fund's assets to pay for expenses and to earn a profit. So, a $ 5000 investment will cost you about $ 50 a year to own if the fund charges 1% a year for expenses. If this $ 5000 grows to $ 10,000, it will cost you about $ 100 a year and so on.

With no-load funds from a major fund family it's that simple ... and that cheap to invest.

There are also mutual funds that you buy through licensed representatives. These funds will have a LOAD (sales charge). Some of these are not so cheap to buy, nor are some of them cheap to own. 

Related How No-Load Mutual Funds Work Articles

Question by piano17man: How do closed end mutual funds work. How are they different than ETF's? Best answer for How do closed end mutual funds work. How are they different than ETF's?:

Answer by Fryemall
A "closed-end fund," legally known as a "closed-end company," is one of three basic types of investment company. The two other basic types of investment companies are mutual funds and Unit Investments Trusts (UITs). Here are some of the traditional and distinguishing characteristics of closed-end funds: Closed-end funds generally do not continuously offer their shares for sale. Rather, they sell a fixed number of shares at one time (in the initial public offering), after which the shares typically trade on a secondary market, such as the New York Stock Exchange or the Nasdaq Stock Market. The price of closed-end fund shares that trade on a secondary market after their initial public offering is determined by the market and may be greater or less than the shares’ net asset value (NAV). Closed-end fund shares generally are not redeemable. That is, a closed-end fund is not required to buy its shares back from investors upon request. Some closed-end funds, commonly referred to as interval funds, offer to repurchase their shares at specified intervals. The investment portfolios of closed-end funds generally are managed by separate entities known as "investment advisers" that are registered with the SEC. Closed-end funds also are permitted to invest in a greater amount of "illiquid" securities than mutual funds. (An "illiquid" security generally is considered to be a security that can’t be sold within seven days at the approximate price used by the fund in determining NAV.) Because of this feature, funds that seek to invest in markets where the securities tend to be more illiquid are typically organized as closed-end funds. Closed-end funds come in many varieties. They can have different investment objectives, strategies, and investment portfolios. They also can be subject to different risks, volatility, and fees and expenses. Keep in mind that just because a fund had excellent performance last year does not necessarily mean that it will duplicate that performance. For example, market conditions can change and this year’s winning fund could be next year’s loser. To understand the factors you should consider before investing in a mutual fund, read Mutual Fund Investing: Look at More Than a Mutual Fund's Past Performance. In addition, you should carefully read all of a fund’s available information, including its prospectus and most recent shareholder report before purchasing mutual fund shares. Closed-end funds are subject to SEC registration and regulation, and are subject to numerous requirements imposed for the protection of investors. Closed-end funds are regulated primarily under the Investment Company Act of 1940 and the rules adopted under that Act. Closed-end funds are also subject to the Securities Act of 1933 and the Securities Exchange Act of 1934. You can find the definition of "closed-end company" in Section 5 of the Investment Company Act.

Answer by Yardbird
The main difference is that ETFs track an index, and for various reasons they trade at almost exactly their NAV (Net Asset Value, the value of the stocks held by the fund). Closed end funds are like ETFs in that their shares trade on the open market, but they don't follow an index. They are "actively managed." For various reasons, they may trade at a "premium" (the share price is higher than the NAV) or a "discount."

[mutual funds how they work]