Answer Posted / chandhu m
Investment firm managed by finance professionals that
raises its capital by selling its shares (called units) to
the public. Mutual fund's capital is invested in a pool
(portfolio) of corporate securities, commodities, options,
etc., that match the fund's objectives detailed in its
prospectus. The level of a mutual fund's income from its
portfolio determines the daily market value (called net
asset value) at which its units are redeemable on any
business day, and the dividend paid to its unit holders.
Mutual funds are of two main types: (1) open end fund,
where the capitalization of the fund is not fixed and more
units may be sold at any time to increase its capital base,
(2) closed end fund, where capitalization is fixed and
limited to the number of units authorized at the fund's
inception (or as formally altered thereafter). Mutual funds
usually charge a management fee (typically between 1 and 2
percent of the fund's annual earnings) and may also levy
other fees and sales commission (called 'load') if units
are bought from a financial advisor. The term 'mutual fund'
has no legal bearing, and may be referred to as unit
investment trust in the US and unit trust in the UK and
other British Commonwealth countries.
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