Financial Markets For The Rest Of Us
An Easy Guide To Money, Bonds, Futures, Stocks, Options, And Mutual Funds
Say hello to mutual funds, or just funds for short. A mutual fund is a financial instrument created by an investment company with defined goals and objectives (e.g., capital appreciation, income, etc.) made up of a collection of financial instruments, managed by a professional, known as a fund manager and a team of experts, and sliced into units to be sold to investors. Each unit represents a small piece of the mutual fund, and therefore it contains the same financial instruments in exactly the same proportions as the whole mutual fund. Put together all the units, and you end up with the whole mutual fund.
The collection of the different instruments is referred to as the fund's portfolio, just like a personal portfolio which may be made up of stocks and bonds. The entire value of a fund at a given time is known as the fund's net assets. As you can imagine, a fund's net assets constantly change as the values of the variety of financial instruments in its portfolio change. For example, if a fund contains stocks among other issues, it's net assets change as the value of its stocks change during trading days. A fund's collection of instruments are usually expressed in terms of percentages, which can be viewed in several different ways. You may have a fund that is made of 100% stocks; or 100% bonds; or 20% stocks, 60% bonds, and 20% cash (i.e., money market). Breaking this down further, you may see a sector breakdown for a fund's stock portfolio. For example 5% in financial stocks, 10% in technology, or 8% in drug stocks. And finally at the lowest level you may have a breakdown of the individual components that make up the portfolio. For example, 2% Intel, 4% GE, or 1% in Merck.
The fund units which are sold to investors are referred to as shares, but instead of share price you would use the term Net Asset Value or …
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