What is a Fund?
How Does a Fund Work?
Funds issue and redeem shares on demand at the fund's , or net asset value. Mutual fund management fees typically range between 0.5% and 2% of assets per year, but 12b-1 fees, exchange fees and other administrative charges also apply.
There are several different types of funds of which you should be aware:
- Closed-End Funds: Closed-end mutual funds issue a fixed number of investing public and usually trade on the major exchanges just like corporate stocks. Closed-end funds often invest in a particular sector, a specific industry or a certain country. to the
- Open-End Funds: Open-end mutual funds stand ready to issue and redeem basis. Shareholders buy the at net asset value ( ) and can redeem them at the current . on a continuous
- load" refers to the sales charge paid by an investor who purchases in a mutual fund. When the sales charge is imposed at the time of purchase, this is known as a front-end load. Conversely, back-end loads represent charges that are assessed when the investor eventually sells the fund. Funds: The term "
- No-Load Funds: A no-load fund is sold without a sales charge.
Additionally, a given fund may issue different classes of itsto investors. The most common variations of for load funds are front-load , back-end-load and level-load .
- A shares charge a front-end load at the time of purchase. This is a sales fee that is charged as a percentage of the total and is used to compensate the financial representative who sells the fund. The amount of the front-end load is subtracted from the original . For example: If an investor places $10,000 in a mutual fund with a front-end load of 2%, then the total sales charge would be $200. The remaining $9,800 go toward the purchase of shares in the fund. Also, A shares may impose an asset-based sales charge. Investors do not pay these charges directly. Instead, they are taken from the fund's assets. The fund then uses these fees to and distribute its shares. The , which can equal a maximum of 0.25% per year, is an example of an asset-based sales charge. : A mutual fund's
- B Shares charge back-end loads. When an investor purchases B shares, the sales charge is deferred until the fund is sold. This deferred load usually decreases each year. B shares typically charge a higher asset-based sales charge than . For example, the B shares of a fund may carry a 5% load if shares are sold within the first year. This of 5%, however, could be reduced by 1% every year until it is eliminated in the fifth year. Some B shares automatically convert to A shares after a specified period of time, which reduces the . :
- C Shares typically do not impose a front-end load but often charge a nominal fee if the shares are sold within one year. often impose a high asset-based sales charge but not convert to A shares when the load reverts to zero. :
Why Does a Fund Matter?
It is an important for an investor to consider mutual funds among theiropportunities. Just as with any , the pros and cons must be compared.
Advantages of investing in funds include:
- Many funds charge hefty fees, leading to lower overall returns.
- Statistics show that most actively managed funds tend to benchmark averages over time. their
- Funds cannot be bought or sold during regular trading hours, but instead are priced just once per day.
Personalized Financial Plans for an Uncertain Market
In today’s uncertain market, investors are looking for answers to help them grow and protect their savings. So we partnered with Vanguard Advisers -- one of the most trusted names in finance -- to offer you a financial plan built to withstand a variety of market and economic conditions. A Vanguard advisor will craft your customized plan and then manage your savings, giving you more confidence to help you meet your goals. Click here to get started.