give you convenience First, it's easy to put money in and take it out The funds technically are "open-end" investment companies, so called because they stand ready to sell additional new shares to investors at any time or buy back ("redeem") shares sold previously You can invest in some mutual funds with as little as $250, and your investment participates fully in any growth in value of the fund and in any dividends paid out. You can arrange to have dividends reinvested automatically.
If the fund is part of a larger fund group, you can usually arrange to switch by telephone within the funds in the group—say from
a common stock fund to a money market fund or tax-exempt bond fund, and back again at will. You may have to pay a small charge for the switch. Most funds have toll-free "800" numbers that make it easy to get service and have your questions answered.
8.2 Load vs. No-load
There are "load" mutual funds and "no-load" funds. A load fund is bought through a broker or salesperson who helps you with your selection and charges a commission ("load")—typically (but not always) 8.5% of the total amount you invest. This means that only 91.5% of the money you invest is actually applied to buy shares in the pool. You choose a no-load fund yourself without the help of a broker or salesperson, but 100% of your investment dollars go into the pool for your account.
Which are better—load or no-load funds? That really depends on how much time and effort you want to devote to fund selection and supervision of your investment. Some people have neither the time, inclination nor aptitude to devote to the task—for them, a load fund may be the answer. The load may be well justified by long-term results if your broker or salesperson helps you invest in a fund that performs outstandingly well.
In recent years, some successful funds that were previously no-load have introduced small sales charges of 2% or 3%. Often, these "low-load" funds are still grouped together with the no-loads, you generally still buy directly from the fund rather than through a broker. If you are going to buy a high-quality fund and hold it a number of years, a 2% or 3% sales charge shouldn't discourage you.
8.3 Common Stock Funds
Apart from the money market funds, common stock funds make up the largest and most important fund group. Some common stock funds take more risk and some take less, and there is a wide range of funds available to meet the needs of different investors.
When you see funds "classified by objective", the classifications are really according to the risk of the investments selected, though the word "risk" doesn't appear in the headings. "Aggressive growth" or "maximum capital gain" funds are those that take the greatest risks in pursuit of maximum growth. "Growth" or "long-term growth" funds may be a shade lower on the risk scale. "Growth-income" funds are generally considered middle-of-the-road. There are also common stock "income" funds, which try for some growth as well as income, but stay on the conservative side by investing mainly in established companies that pay sizable dividends to their owners. These are also termed "equity income" funds, and the best of them have achieved excellent growth records.
Some common stock funds concentrate their investments in parindustries or sectors of the economy. There are funds that invest in energy or natural resource stocks; several that invest in gold-mining stocks, others that specialize in technology, health care, and other fields. Formation of this type of specialized or "sector" fund has been on the increase.
8.4 Other Types of Mutual Funds
There are several types of mutual funds other than the money market funds and common stock funds. There are a large number of bond funds, investing in various assortments of corporate and governbonds There are tax-exempt bond funds, both long-term and shorter-term, for the high-bracket investor There are "balanced" funds which maintain portfolios including both stocks and bonds, with the objective of reducing risk And there are specialized funds which invest in options, foreign securities, etc.
8.5 The Daily Mutual Fund Prices
One advantage of a mutual fund is the ease with which you can follow a fund's performance and the daily value of your investment. Every day, mutual fund prices are listed in a special table in the financial section of many newspapers, including the Wall Street Journal. Stock funds and bond funds are listed together in a single alphabetical table, except that funds which are part of a major fund group are usually listed under the group heading (Dreyfus, Fidelity, Oppenheimer, Vanguard, etc.).
The listings somewhat resemble those for inactive over-the-counter stocks. But instead of "bid" and "asked", the columns are usually headed "NAV" and "Offer Price". "NAV" is the net asset value per share of the fund. it is each share's proportionate interest in the total market value