1

fund

noun \ ˈfənd \
Updated on: 14 Nov 2017

Definition of fund

1 a : a sum of money or other resources whose principal or interest is set apart for a specific objective
b : money on deposit on which checks or drafts can be drawn usually used in plural
c : capital
d funds plural : the stock of the British national debt usually used with the
2 : an available quantity of material or intangible resources : supply
3 funds plural : available pecuniary resources
4 : an organization administering a special fund

Examples of fund in a Sentence

  1. The fund was established to aid the poor.

  2. All her funds were in a checking account.

  3. His funds were getting lower as he continued to look for a job.

  4. The comedian had a large fund of jokes.

Recent Examples of fund from the Web

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'fund.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

Origin and Etymology of fund

earlier fond, borrowed (with later respelling after Latin fundus) from French fond "bottom, base, foundation," (in plural) "sum of money, capital, resources," going back to Old French funt, font "bottom, base, cultivated ground," going back to Latin fundus — more at 1bottom


2

fund

verb

Definition of fund

transitive verb
1 a : to make provision of resources for discharging the interest or principal of
b : to provide funds for
  • a federally funded program
2 : to place in a fund : accumulate
3 : to convert into a debt that is payable either at a distant date or at no definite date and that bears a fixed interest
  • fund a floating debt

funder

play \ˈfən-dər\ noun

Examples of fund in a Sentence

  1. The group funded three new scholarships.

  2. Who funds the company pension plan?

Recent Examples of fund from the Web

These example sentences are selected automatically from various online news sources to reflect current usage of the word 'fund.' Views expressed in the examples do not represent the opinion of Merriam-Webster or its editors. Send us feedback.

Origin and Etymology of fund

derivative of 1fund


3

fund

abbreviation

Definition of fund


Financial Definition of FUND

fund

What It Is

Fund usually refers to mutual fund, which is an open-ended investment company that pools investors' money into a fund operated by a portfolio manager. This manager then turns around and invests this large pool of shareholder money in a portfolio of various assets or combinations of assets.

How It Works

Funds may include investments in stocks, bonds, options, futures, currencies, treasuries and money market securities. Depending on the stated objective of the fund, each will vary in regard to content and risk.

Funds issue and redeem shares on demand at the fund's NAV, 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 shares to the 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.
Open-End Funds: Open-end mutual funds stand ready to issue and redeem shares on a continuous basis. Shareholders buy the shares at net asset value (NAV) and can redeem them at the current market price.
Load Funds: The term "load" refers to the sales charge paid by an investor who purchases shares 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.
No-Load Funds: A no-load fund is sold without a sales charge.

Additionally, a given fund may issue different classes of its shares to investors. The most common variations of share classes for load funds are front-load A shares, back-end-load B shares and level-load C shares.

Class A Shares: A mutual fund's 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 investment and is used to compensate the financial representative who sells the fund. The amount of the front-end load is subtracted from the original investment. 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 will 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 market and distribute its shares. The 12b-1 fee, which can equal a maximum of 0.25% per year, is an example of an asset-based sales charge.
Class B Shares: 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 Class A Shares. For example, the B shares of a fund may carry a 5% load if shares are sold within the first year. This back-end load 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 12b-1 fees.
Class C Shares: C Shares typically do not impose a front-end load but will often charge a nominal fee if the shares are sold within one year. Class C shares often impose a high asset-based sales charge but will not convert to A shares when the load reverts to zero.

Why It Matters

It is an important for an investor to consider mutual funds among their investment opportunities. Just as with any investment, the pros and cons must be compared.

Advantages of investing in funds include:

Professional management
Investment diversification
Liquidity
Explicit investment goals
Simple reinvestment programs

Disadvantages:

Many funds charge hefty fees, leading to lower overall returns.
Statistics show that most actively managed funds tend to underperform their benchmark averages over time.
Funds cannot be bought or sold during regular trading hours, but instead are priced just once per day.


index fund

What It Is

Index funds are mutual funds that are designed to track the performance of a particular index.

How It Works

When an investor purchases a share of an index fund, he or she is purchasing a share of a portfolio that contains the securities in an underlying index. The index fund holds the securities in the same proportion as they occur in the actual index, and when the index decreases in value, the fund's shares decrease as well, and vice versa. The only time an index buys or sells a stock is when the index itself changes (either in weighting or in composition). Index funds have ticker symbols and are traded on all major exchanges.

Index funds are available for most any index. Some index funds replicate broad market indexes, and some replicate indexes that only contain securities with special characteristics, including minimum financial ratios, participation in a certain industry,  geography, or other distinctions.

The performance of an index fund usually does not exactly match the actual index's performance. This is because index funds charge management fees, which eat into returns, and because the fund's weighting in particular securities may not perfectly match the weighting of the securities in the actual index. The degree to which the fund and the index returns differ is called tracking error.

Why It Matters

Index funds are a popular way to participate in the stock market and diversify a portfolio. Index funds have several major advantages over direct ownership of the underlying securities. Here's a brief review:

Diversification -- Each index fund represents an interest in an underlying basket of securities. This allows investors to gain broad exposure to a large group of companies easily. This diversification also makes index funds much less volatile than individual securities. Foreign index funds in particular make diversifying abroad less difficult and expensive; they also offer exposure to entire foreign markets and market segments.

Low Cost -- Buying and selling shares of an index fund is far less expensive than separately buying and selling a basket of underlying shares. Also, the decision of which securities to invest in is determined by the index rather than by active management. This is why index funds usually have minimal expense ratios and are often more affordable than other diversified investment vehicles. However, many have minimum investment requirements and front- or back-end loads, making them impractical for some investors.

Liquidity
-- Index fund shares are bought and sold on major exchanges every day, and many funds trade hundreds of thousands (and in some cases millions) of shares per day. Buying and selling shares of an index fund can be faster and more convenient than buying and selling the underlying shares.

Dividends -- Many index funds pass through the accumulated dividends paid by their underlying stocks. Over time, these dividends can add up to a significant sum.

Choices
-- Some index funds track broad U.S. equity market indexes. Meanwhile, others track specific sectors or industry groups. Still others represent an interest in baskets of foreign stocks. And finally, others invest exclusively in the bond market.

Returns
-- Studies have proven that over time, the average mutual fund typically fails to beat the broad indexes. With this in mind, index funds are a great way to capture broader-market returns. For adherents to the efficient market hypothesis, which states that it is impossible to outperform the broad stock market over the long haul, index funds can be a way to optimize portfolio returns.


vulture fund

What It Is

A vulture fund is a pool of investor money that makes investments in securities from distressed issuers (usually bonds).

How It Works

Let's say Company XYZ has lost 75% of its customers due to a food-poisoning scandal. The stock has lost 90% of its value, and the market does not believe the company can recover. Company XYZ still owns, however, a patent on a packaging technique that could be licensed and applied in other industries. Vulture Fund ABC knows this and buys high-yield bonds in Company XYZ, betting that the value of that patent might resurrect the company or at least ensure the return of capital plus interest if the patent is sold during bankruptcy.

Vulture funds often also purchase debt from lenders. So, for instance, if Bank DEF had lended $15 million to Company XYZ and Bank DEF wants to get this debt off the books, it might sell that debt to a vulture fund, similar to how credit card companies might sell customer debts to collection agencies. The vulture fund then negotiates with Company XYZ to secure a payout greater than the vulture fund's initial investment.

Vulture funds also invest in sovereign debt, which is the debt of countries' governments. When countries are struggling, vulture funds might purchase this debt and then become heavily involved and influential in the government's restructuring.

Why It Matters

Vulture funds often get a bad rap for circling dying companies in the hopes of picking off the last meat on a carcass for a quick profit. However, the analogy should sometimes be more like giving CPR. Vulture funds are often the last chance companies have to come back to life, and the funds' offers to provide cash may be the last attempt these companies can make to rescuscitate themselves.



FUND Defined for English Language Learners

fund

noun

Definition of fund for English Language Learners

  • : an amount of money that is used for a special purpose

  • funds : available money

  • : an amount of something that is available for use : a supply of something


fund

verb

Definition of fund for English Language Learners

  • : to provide money for (something)


FUND Defined for Kids

fund

noun \ ˈfənd \

Definition of fund for Students

1 : a sum of money for a special purpose
  • a book fund
2 funds plural : available money
  • I'm out of funds until I get paid.
3 : 1stock 1, supply
  • a fund of knowledge

Law Dictionary

1

fund

noun

legal Definition of fund

1 : a sum of money or other resources whose principal or interest is set aside for a specific objective
client security fund
: a fund established by each state to compensate clients for losses suffered due to their attorneys' misappropriation of funds
common trust fund
: an in-house trust fund established by a bank trust department to pool the assets of many small trusts for greater diversification in investing
executor fund
: a fund established in estate planning to provide for the payment of final expenses by an executor
joint welfare fund
: a fund that is established by collective bargaining to provide health and welfare benefits to employees and that is jointly administered by representatives of labor and management
paid-in fund
: a reserve cash fund in lieu of a capital stock account set up by mutual insurance companies to cover unforeseen losses
sinking fund
: a fund set up and accumulated by regular deposits for paying off the principal on a debt or for other specified purposes (as self-insurance)
strike fund
: a fund accumulated by a union through special assessments or from general funds and used to pay striking workers or for other strike-related activities
Taft-Hartley fund \ˈtaft-ˈhärt-lē-\
after the Taft-Hartley Act of 1947, which established it
: joint welfare fund in this entry
trust fund
: property (as money or securities) settled or held in a trust
2 : an organization administering a special fund
exchange-traded fund
: a fund that is similar to an index fund in tracking a stock index but that is traded on the stock market
growth fund
: a mutual fund that invests in the stock of growth companies
hedge fund
: an investing group usually in the form of a limited partnership that employs speculative techniques in the hope of obtaining large capital gains
index fund
: a mutual fund that invests to reflect the composition of the market as a whole by matching its investments to a stock index
mutual fund
: an investment company that invests its shareholders' money in a usually diversified group of securities of other companies
vulture fund
: an investment company that buys up bankrupt or insolvent companies with the goal of reorganizing them so they can be profitably resold as going concerns

2

fund

transitive verb

legal Definition of fund

1 a : to make provision of resources for discharging the principal or interest of
b : to provide financial resources for
2 : to place in a fund
3 : to convert into a debt that is payable either at a distant date or at no definite date and that bears a fixed interest


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