Mutual fund
Also known as: open-end fund, open-end investment company
A mutual fund is an open-end investment company that pools money from many investors and invests it in a diversified portfolio of securities. Shares are bought from and redeemed with the fund itself at net asset value (NAV).
A mutual fund pools contributions from many investors into a single professionally managed portfolio of stocks, bonds, or other securities. Each investor owns shares representing a proportional slice of the whole portfolio, which provides instant diversification and professional management even for small account sizes.
Legally, a mutual fund is an open-end investment company. It continuously issues new shares to buyers and stands ready to redeem shares from sellers — investors transact with the fund itself, not with other investors on an exchange. Every purchase and redemption is priced at the fund's net asset value (NAV) per share, calculated once daily by dividing total portfolio assets minus liabilities by shares outstanding. Under forward pricing, an order placed today receives the next NAV computed after the order arrives. Buyers may also pay a sales charge, depending on the share class.
Funds come in many varieties — equity growth funds, bond income funds, balanced funds, index funds, money market funds — each defined by the investment objective stated in its prospectus. Ongoing costs matter too: management fees and operating expenses reduce returns, so exam questions often hinge on comparing share classes and expense structures.
Mutual funds are a major topic on the Series 6, Series 65, and Series 66 exams. Know how NAV pricing works, how open-end funds differ from closed-end funds and ETFs, what sales charges apply to each share class, and how to match a fund's objective to an investor's goals.
Key takeaways
- A mutual fund pools investor money into one diversified, professionally managed portfolio.
- It is an open-end investment company: shares are continuously issued and redeemed by the fund itself.
- All transactions occur at the next computed net asset value (forward pricing), plus any applicable sales charge.
- Fund choices are defined by the investment objective in the prospectus, and fees and share classes affect investor returns.
- The Series 6, Series 65, and Series 66 exams test NAV pricing, share classes, and open-end versus closed-end structures.