What is a mutual fund?
A mutual fund is a portfolio, or collection, of
individual securities (some combination of stocks, bonds,
or money market instruments) managed according to a
specific objective spelled out in the fund's prospectus. A
mutual fund allows investors to pool their money, then the
fund invests it on their behalf.
Unlike individual stocks, whose value fluctuates minute
by minute, mutual funds are priced at the end of each day
the market is open, based on what the securities in the
portfolio are worth. The price per share, or net asset
value (NAV), of a mutual fund is the current market value
of the fund's net assets divided by the number of shares
outstanding. Investors buy and sell shares in the fund
based on its NAV as of the next market close.
Why invest in a mutual fund?
Diversification is one of the key reasons for investing
in mutual funds. Most investors are concerned about the
risks associated with financial markets; namely, that their
investments will lose money or will not grow enough over
time to outpace inflation and meet their future financial
needs. While the risks of the stock market cannot be
eliminated, there are various strategies used to reduce the
level of risk. One such strategy is diversification.
With a single investment in a stock or bond, an investor
essentially has all of his or her eggs in one basket. With
a mutual fund investment, by contrast, an investor
typically gains exposure to dozens of securities, thereby
spreading risk across a range of securities. Assuming that
the mutual fund's portfolio is itself properly diversified,
the Fund's value should not fluctuate as widely as the
price of an individual stock.
An investment in several mutual funds that have
different investment objectives can result in even broader
diversification. Some mutual funds that have only a few
stocks in their portfolio or focus solely on particular
sectors (i.e., technology or healthcare) are considered
non-diversified. An investor would have to invest in
several non-diversified funds to achieve diversification
and reduce certain risks. For more information on
diversification, see Asset Allocation.
Mutual funds are managed by investment professionals,
who have the knowledge and expertise to buy and sell
securities that fit the investment objectives of the fund.
Most fund managers have extensive educational and
professional credentials and years of experience managing
For an individual investor, buying and selling
individual stocks or bonds can be complicated, requiring
extensive knowledge of financial markets, expensive,
because of brokerage costs, and time consuming. Mutual
funds greatly simplify the investment process by providing
investors a ready-made professionally managed portfolio at
a reasonable cost. Mutual fund shares can also be readily
bought and sold at a price calculated daily - the Net Asset
Value per share (or NAV). Some mutual funds charge a "load"
or sales charge to invest (a "front end load") or sell your
shares ("back end load"). All of the Domini Funds are
"no-load" meaning that there is no fee charged to invest in
our funds, or to sell your shares. Although the Domini
Funds' Investor shares are no-load, certain fees and
expenses apply to a continued investment, as described in
the Funds' current prospectus.