Open-End Mutual Funds 

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Open-End Mutual Funds



Investment Snapshot

* The Investment Company Institute estimated that about 55 million U.S. households owned mutual funds as of November 2006.
* As of November 2006, total net assets invested in mutual funds were over $10 trillion in the United States.
* A total of $5.45 trillion was invested in equity mutual funds as of September 2006.
* The total number of stock mutual funds offered in September 2006 was 4,686.

Mutual funds have come close to providing the ideal type of investment for millions of investors who do not want to manage their own investments. The managers of these funds invest shareholders’ money in diversified portfolios of stocks, bonds, and money market instruments. Investors receive shares in these mutual funds related to the size of their investments. Thus, even with a modest investment, an investor owns a share of a diversified portfolio of stocks or bonds. An advantage of this type of investment is that investors—who do not have the time to manage their financial investments or knowledge of the individual financial securities—can invest their money in diversified stock, bond, and money market portfolios of mutual funds.

Studies have shown that stock mutual funds have underperformed the market averages over long periods. Research by Standard & Poor’s (S&P) on equity mutual funds found that very few mutual funds consistently outperform the markets. The small number of funds that did consistently perform well had a common theme: low expense ratios. For this reason, many investors have turned to exchange-traded funds (ETFs) as a popular investment alternative.

With so many mutual funds to choose from, investors should be as careful in their selection of mutual funds as they are in investing in individual securities. Three steps can facilitate the choice of which fund to invest in
1. Understand how these funds work.
2. Determine what the objectives of the funds are and the types of investments they make.
3. Evaluate the fund’s performance from its prospectus and other sources.

KEY CONCEPTS
* Understanding funds and how they work
* Different types of funds
* What to look for in a fund’s prospectus before investing in a fund
* The different sources of risk of mutual funds
* Determining when it is advantageous to invest in individual securities or to use the different types of funds discussed in this directory




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