Mutual Funds

A mutual fund is a form of collective investments that pools money from many different investors and invests it in stocks, bonds, short-term money market instruments, and other securities. In a mutual fund, the fund manager or portfolio manager, trades the fund’s underlying securities, realizing capital gains or losses, and collects the dividend or interest income. The investment proceeds are then passed to the individual investors. The value of a share of the mutual fund, known as the NAV, is calculated daily based on the total value of the fund divided by the number of shares issued and outstanding.

Mutual funds are legally known as an "open-end company" under the Investment Company Act of 1940, a mutual fund is one of three basic types of investment companies available in the United States.

Mutual funds provide the investor with an opportunity to invest without the need of a large significant capital. Most companies have minimal investment requirements as well as automatic monthly investment plans

Mutual funds are responsible to a special set of regulatory, accounting, and tax rules. Unlike most other types of businesses, they are not taxed on their income. Also, the type of income they earn is often unchanged as it passes through to the shareholders. Mutual fund distributions of tax-free municipal bond income are also tax-free to the shareholder. Taxable distributions can be either capital gains, or ordinary income, depending on how the mutual fund earned those distributions.