What is a Mutual Fund and How Does It Work?
             Think of a mutual fund as an investment company that pools the money
             of people just like you for one common reason -- to make more. Not all
             pots of money, though, are alike. Each mutual fund has its own strategy
             and investment objective for making money. It's up to you to select the
             right mutual fund for you based on your own needs.
             There are two types of mutual funds. The most common, which this
             book primarily talks about, is open-end funds. In essence, they are open
             -- money flows directly into the fund when investors buy and goes
             directly out when they sell. The other type is closed-end funds, which
             technically are not mutual funds. You'll learn more about them in
             With a mutual fund, the big pool of money we talked about previously is
             managed by a company, which frequently the organization that started
             the fund. This management company either serves as or hires the
             fund's investment advisor. The advisor employs a portfolio manager and
             his or her research staff to select the investments for the mutual fund.
             Mutual funds are subject to strict federal regulations. The fund broker or
             other salesperson is required to give you a prospectus before you
             invest. The prospectus is an important document that spells out the
             investment objectives of the fund, risks, fees, and other important
             information. You'll learn more about what's in a prospectus and what you
             should look for in Chapter 9. The Securities and Exchange Commission
             (SEC) is the U.S. gover...