Key Points to
Mutual funds are not guaranteed or
insured by the FDIC or any other government agency — even if you buy through a bank and the fund carries the
bank's name. You can lose money investing in mutual funds.
Past performance is not a reliable indicator of
future performance. So don't be dazzled by last year's high returns. But past performance can help you assess a
fund's volatility over time.
All mutual funds have costs that lower your
investment returns. Shop around, and use a mutual fund cost calculator at www.sec.gov/investor/tools.shtml to compare many of the costs of
owning different funds before you buy.
How Mutual Funds
A mutual fund is a company that
pools money from many investors and invests the money in stocks, bonds, short-term money-market instruments, other
securities or assets, or some combination of these investments. The combined holdings the mutual fund owns are
known as its portfolio. Each share represents an investor's proportionate ownership of the fund's holdings and the
income those holdings generate.
Other Types of
as an "open-end company," a mutual fund is one of three basic types of investment companies.
While this brochure discusses only mutual funds, you should be aware that other pooled
investment vehicles exist and may offer features that you desire. The two other basic types of
investment companies are:
— which, unlike mutual
funds, sell a fixed number of shares at one time (in an initial public offering) that
later trade on a secondary market; and
Unit Investment Trusts (UITs)
— which make a one-time
public offering of only a specific, fixed number of redeemable securities called "units" and
which will terminate and dissolve on a date specified at the creation of the
"Exchange-traded funds" (ETFs) are a type of investment company that aims to achieve the
same return as a particular market index. They can be either open-end companies or UITs. But
ETFs are not considered to be, and are not permitted to call themselves, mutual
Some of the traditional,
distinguishing characteristics of mutual funds include the following:
Investors purchase mutual
fund shares from the fund itself (or through a broker for the fund) instead of from other
investors on a secondary market, such as the New York Stock Exchange or Nasdaq Stock