mutual fund

noun

Definition of mutual fund

: an open-end investment company that invests money of its shareholders in a usually diversified group of securities of other corporations

Examples of mutual fund in a Sentence

She invested her money in a mutual fund.

Recent Examples on the Web

That comes after Fidelity Investments’ zero-fee mutual funds took in nearly $3 billion in the last five months of 2018, according to the firm. Jason Zweig, WSJ, "Why You Should Think Twice About ‘Free’ Funds," 1 Mar. 2019 Later this year, however, U.S. stock index funds may for the first time control more in assets than mutual funds run by stock-picking managers trying to deliver better returns than an index like the S&P 500. Stan Choe, The Seattle Times, "40 years after his “folly,” Bogle’s index funds reign," 23 Jan. 2019 With $222 billion in assets, his Pimco Total Return fund was the largest bond mutual fund in the world. Michael Hiltzik, latimes.com, "Vandalized homes, spying, a knife and restraining orders: Inside a billionaire couple's nightmarish divorce," 20 June 2018 The surge in popularity for index funds is a product of their lower fees, better performance and the preaching of John Bogle, the founder of Vanguard Group, which launched the first index mutual fund for individual investors in 1976. Stan Choe, The Seattle Times, "40 years after his “folly,” Bogle’s index funds reign," 23 Jan. 2019 That is the clear message of the S&P Persistence Scorecard, a report that S&P Dow Jones Indices has been publishing periodically since 2002 that measures the likelihood that top-performing mutual funds will continue to be top-ranked. Mark Hulbert, WSJ, "What Investors Should Know About Yearly Performance Rankings," 6 Jan. 2019 As a result, SpaceX shares are a component of some Fidelity mutual funds, allowing investors to buy SpaceX shares as part of a much larger portfolio of stocks. Timothy B. Lee, Ars Technica, "There’s a big problem with Elon Musk’s plan to take Tesla private," 9 Aug. 2018 Wiener recommends choosing Vanguard International Value (symbol: VTRIX) mutual fund over Vanguard International Growth (VWIGX) for overseas equity exposure. Erin Arvedlund, Philly.com, "Do ESG investments outperform? One investor says 'no way'," 9 July 2018 And the performance of most mutual funds does not justify these costs. The Economist, "The growth of index investing has not made markets less efficient," 5 July 2018

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

See More

First Known Use of mutual fund

1932, in the meaning defined above

Keep scrolling for more

Learn More about mutual fund

Statistics for mutual fund

Last Updated

18 Apr 2019

Look-up Popularity

Time Traveler for mutual fund

The first known use of mutual fund was in 1932

See more words from the same year

Keep scrolling for more

More Definitions for mutual fund

mutual fund

noun

Financial Definition of mutual fund

What It Is

Mutual funds are open-ended investment companies that pool 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

Mutual 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 mutual funds you should be aware of:

Closed-End Mutual 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 Mutual 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 mutual fund will issue different classes of its shares to investors.  The most common variations of share classes for load mutual 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. A shares may also 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 the B shares of a mutual fund, 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 mutual 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 5th year. Some B shares automatically convert to A shares after a specified period of time, which reduces the 12b-1 fees.

Class C Shares: Class 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 mutual funds include:

Professional management
Investment diversification
Liquidity
Explicit investment goals
Simple reinvestment programs

Disadvantages:

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

Source: Investing Answers

mutual fund

noun

English Language Learners Definition of mutual fund

US : a type of investment in which the money of many people is used to buy stock from many different companies

mutual fund

Legal Definition of mutual fund

see fund sense 2

More from Merriam-Webster on mutual fund

Britannica.com: Encyclopedia article about mutual fund

Comments on mutual fund

What made you want to look up mutual fund? Please tell us where you read or heard it (including the quote, if possible).

WORD OF THE DAY

having no equal

Get Word of the Day daily email!

Test Your Vocabulary

Words from Greek and Latin Quiz

  • roman forum
  • Which of the following months comes from a Latin word for “ten”?
How Strong Is Your Vocabulary?

Test your vocabulary with our 10-question quiz!

TAKE THE QUIZ
Word Winder's CrossWinder

Test Your Knowledge - and learn some interesting things along the way.

TAKE THE QUIZ
Love words? Need even more definitions?

Subscribe to America's largest dictionary and get thousands more definitions and advanced search—ad free!