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Mutual Fund[1] Basics

Basic Mutual Fund Concepts

by InvestorGuide Staff



January 2007

There's a lot of terminology associated with mutual funds that you'll need to know before you can start investing in them. These concepts are an important part of mutual fund investing; you should make sure that you understand them in full before you start to invest in mutual funds.

Open-end Funds

All mutual funds fall into one of two broad[2] categories: open-end funds and closed-end funds. Most mutual funds are open-end. The reason why these funds are called "open-end" is because there is no limit[3] to the number of new shares that they can issue[4]. New and existing[5] shareholders may add as much money to the fund as they want and the fund will simply issue new shares to them. Open-end funds also redeem[6], or buy back, shares from shareholders. In order to determine[7] the value of a share in an open-end fund at any time, a number called the Net Asset Value (described below) is used. You purchase[8] shares in open-end mutual funds from the mutual fund itself or one of its agents[9]; they are not traded on exchanges.

Closed-end Funds

Closed-end funds behave[10] more like stock than open-end funds; that is to say, closed-end funds issue a fixed number of shares to the public in an initial public offering, after which time, shares in the fund are bought and sold on a stock exchange. Unlike open-end funds, closed-end funds are not obligated[11] to issue new shares or redeem outstanding shares[12]. The price of a share in a closed-end fund is determined[13] entirely by market demand[14], so shares can either trade above[15] their net asset value ("at a premium") or below[16] it ("at a discount"). Since you must take into consideration[17] not only the fund's net asset value but also the discount or premium at which the fund is trading, closed-end funds are considered to be more suitable[18] for experienced investors. You can purchase shares in a closed-end fund through a broker, just as you would purchase a share of stock[19].

Net Asset Value (NAV)

Open-end mutual funds price their shares in terms of a Net[20] Asset[21] Value (NAV) (note that you can calculate[22] NAV for a closed-end fund too, but it will not necessarily[23] be the price at which you buy or sell closed-end shares). NAV is calculated by adding up the market value of all the fund's underlying securities, subtracting all of the fund's liabilities, and then dividing by the number of outstanding shares in the fund. The resulting NAV per share is the price at which shares in the fund are bought and sold (plus or minus any sales fees[24]). Mutual funds only calculate their NAVs once per trading day, at the close of the trading session[25].

Underlying securities[26] – Liabilities[27]

NAV =

Number of outstanding shares[28]

For the rest of the article please go to:

Mutual Fund Basics

Basic Mutual Fund Concepts

by InvestorGuide Staff   (Write for us!)

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[1] A mutual fund = קרן נאמנות

[2] Broad ( "wide", רחב/ה,ים/ות

[3] A limit = מגבלה, גבול

[4] To issue = להנפיק

[5] Existing = קיימים

[6] To redeem = לפדות

[7] To determine = לקבוע, להחליט

[8] To purchase = לקנות

[9] An agent = סוכן

[10] To behave = להתנהג

[11] Obligated = מחויב

[12] Outstanding shares = הון נפרע

[13] Determined = נקבע Also, determined = החלטי, נחוש,

[14] Demand = ביקוש Supply & Demand = ביקוש והיצע

[15] Above = מעל ל...

[16] Below = מתחת ל...

[17] הכוונה - לקחת בחשבון

[18] Suitable = מתאים ל, הולם

[19] לפעמים אפשר להבדיל בין share לבין stock

[20] Net = נטו ≠ Gross = ؀ࠁࠂࠍࠎࠖ࠱࠲ࡈࡉࡊࢷࢸࢹङचद뫖躤芈晲䱞㽦⽦ᘟᩨ⵶䈀Ī䩃䩏[21]䩑[22]䩡桰㌳3ᔘ���ⱓᘀ୨���　ཊ䌀၊愀၊ȣ脈樃ࠆᔁ���ⱓᘀ멨䘣䌀၊唀Ĉ䩡ᘎ���ⱓ䌀၊愀၊̗jᘀ���ⱓ䌀၊唀Ĉ䩡ᘟ���ⱓ䈀Ī䩃䩏[23]䩑[24]䩡桰㌳3ᘊ୨���　၊ᘊ���ⱓ　၊ᔫ꽨餏ᘀ୨���㔀脈⩂䌇ᭊ伀Ɋ儀Ɋ尀脈䩡桰蛴

ᔫ꽨餏ᘀ୨���㔀脈⩂䌂⅊伀Ɋ儀Ɋ尀脈䩡!桰娡­̶jᘀⅨ倩　ᙊ㔀脈⩂䌂⅊伀Ɋ儀Ɋברוּטוֹ

[25] An asset = נכס

[26] To calculate = לחשב

[27] Not necessarily = לא בהכרח

[28] fees = עמלות, חיובים

[29] A session ( a meeting, a conference, a "sitting" = ישיבה, קטע

[30] Underlying securities = Underlying Assets = נכסי הבסיס

[31] Liabilities = התחייבויות

[32] Outstanding shares = הון נפרע

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