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Simple English definitions for legal terms
mutual fund
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A quick definition of mutual fund:
A mutual fund is like a big piggy bank that lots of people put their money into. The people who run the piggy bank are really good at investing the money to make more money. They spread the money out into different things like stocks and bonds to make sure they don't lose all the money if one thing goes down. There are two types of piggy banks: one where you can take your money out anytime you want, and one where you can only trade with other people. The government makes sure the piggy banks follow rules to protect the people who put their money in.
A more thorough explanation:
A mutual fund is a type of investment where a group of investors pool their money together to buy a collection of stocks, bonds, and other securities. The mutual fund is managed by a professional team who aim to make a profit for the investors.
There are two types of mutual funds:
- Open-end fund: Investors can buy and sell shares at any time.
- Closed-end fund: Shares are only traded among investors on the secondary market.
Mutual funds are often diversified, meaning they invest in a variety of different securities to reduce risk and maximize profits. For example, a mutual fund might invest in stocks from different industries, bonds from different companies, and futures contracts.
All mutual funds are subject to federal regulations, including the Securities Act of 1933, the Securities Exchange Act of 1934, and the Investment Company Act of 1940. The Securities and Exchange Commission (SEC) monitors mutual funds to ensure they comply with these regulations.
Imagine a mutual fund called the "Tech Stock Fund." This fund might invest in stocks from different technology companies, such as Apple, Microsoft, and Amazon. By investing in a variety of tech stocks, the mutual fund reduces the risk of losing money if one company performs poorly. If the tech industry as a whole performs well, the mutual fund will make a profit for its investors.