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Mutual Funds FAQs
What is a Mutual Fund? A mutual fund is a corporation which pools together investor's money to purchase securities. Investors of mutual funds receive shares of the entire pool of assets, thereby diversifying their investment. The pooled assets are managed by professionals who buy and sell securities according to the objective of the fund. What is the difference between a closed-end and an open-end fund? A closed-end fund has a fixed number of shares outstanding, and is traded in a similar way to stocks. Open-end funds, which are much more common, sell and redeem shares at any time directly to shareholders. Sales and redemption prices for open-end funds are fixed based on the fund's net asset value (NAV). The more investors purchasing a fund, the higher its net assets, but per share prices will remain the same; on the other hand, since closed-end funds are traded on the market, it can be priced at a premium or discount, depending on demand as well as performance. What is the commission Firstrade charges for buying Mutual Funds? We charge $9.95 for online purchase of no-load mutual funds, while load funds and NTF funds are commission free. Broker assisted trades are charged $26.95. A mutual fund had great returns last year, is it going to receive the same returns this year? A mutual fund is not a fixed income product, the performance of a fund is based on the performance of the assets held by the fund. If the assets of the fund's portfolio decline in value, the mutual fund investment also loses value. While the previous year's performance is an indicator of the quality of the fund's management, it is not a guarantee of future returns. How can I set up periodic investments? You can take advantage of "dollar cost averaging" by having Firstrade purchase mutual funds for you at a predetermined time interval. To sign up for periodic investments, complete and mail this form. Are there risks involved in Mutual Fund investments? While considered less risky than stocks, there is still a chance you will get back less than your original investment as a result of a declining NAV for the fund, or sales charges associated with purchasing the fund. How do I choose the right mutual fund for me? Every mutual fund has a different objective, some aim for aggressive growth, others emphasize income by investing in bonds or preferred stocks, while others maintain a balanced portfolio by investing across the stock, bond, and money markets. With so many different funds to choose from, there is surely a fund that will suit your investment needs. Can I purchase mutual funds for my IRA account? Yes, you can purchase any mutual funds through your IRA account. What is a prospectus? A prospectus is a document that contains detailed information on a particular mutual fund. It must be provided to all shareholders of open-end funds and newly-issued closed-end funds.
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