Mutual fund

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A mutual fund is a selection of professionally bought and managed stocks in which money is pooled by an investment company. The funds continually offer new shares and buys existing shares back on demand and uses its capital to invest in diversified securities of other companies.

The share price of the mutual fund is based on the net value of the assets or the value of all the investments owned by the fund, less any debts. The major advantage of mutual funds is a reduced risk - the money is spread across several investments. If one or two do poorly, the remainder may do better, averaging the loss. For many small investors, another advantage of mutual funds is that they do not have to watch the stock markets constantly, and do extensive research into each stock.

Bond funds are mutual funds that deal in the bond markets.

Money market funds focus on the debt instruments sold in the money markets.

Equity mutual funds place their investments in the common shares of companies.

Sources

http://usinfo.state.gov/products/pubs/oecon/chap12.htm

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