| an investment company that issues shares continuously and is obligated to repurchase them from shareholders on demand. |
| mutual fund n. An investment company that continually offers new shares and buys existing shares back at the request of the shareholder and uses its capital to invest in diversified securities of other companies. |
Mutual Fund
A security that gives small investors access to a well-diversified portfolio of equities, bonds and other securities. Each shareholder participates in the gain or loss of the fund. Shares are issued and can be redeemed as needed.
Investopedia Commentary
The fund's net asset value (NAV) is determined each day. Each mutual fund portfolio is invested to match the objective stated in the prospectus.
It has been shown in study after study that a majority of mutual funds fail to beat the market. Also, picking mutual funds purely on the basis of past performance usually does not work.
Related Links
Mutual Fund Basics Tutorial
When To Sell A Mutual Fund
The Truth Behind Mutual Fund Returns
Can You Pick the Winners at the Mutual Fund Track?
See also: Asset allocation Fund, Back End Load, Balanced Fund, Closed End Mutual Fund, Front End Load, Net Asset Value (NAV), No-Load Fund, Open-End Fund, Portfolio, Prospectus
Also spelled: mutualfund
mutual fund
Case Study Most research indicates a mutual fund's short-term performance is not an accurate indicator of long-term performance. In other words, it is generally a mistake to choose a mutual fund based on the fund's investment performance during the past quarter or the past year. Even consistent long-term performance may not be a fool-proof guide to selecting a fund. Fidelity's Magellan is considered the outstanding success story among the thousands of mutual funds that have been formed. Peter Lynch, the manager of Magellan for 13 years, became an almost mystical figure among institutional investors before voluntarily stepping down as manager in 1990. A reputation for excellent investment performance over many years caused the fund to grow to the point where, by mid-1996, it had 4.4 million shareholders and managed $56 billion in assets. Jeff Vinik, who took over the fund's reins following the departure of Lynch also produced some excellent results. In early 1996, however, Vinik turned bearish and placed nearly 30% of Magellan's assets in cash and long-term U.S. Treasury bonds. The conservative portfolio caused the fund to underperform in a market that exploded in initial public offerings and technology stocks. In May 1996, Fidelity announced Vinik would be leaving Magellan. His replacement was the manager of one of Fidelity's other mutual funds. Although Vinik apparently erred in becoming too conservative, many market watchers thought the real problem was that Magellan had become so large it was impossible to manage effectively. |
