Funds FAQs

A fund is a pool of money collected from multiple investors to invest in various assets, managed by professional fund managers.

Mutual funds are priced and traded once a day at the net asset value (NAV), while ETFs are traded throughout the day on stock exchanges like individual stocks.

Funds can invest in a wide range of assets, including stocks, bonds, real estate, commodities, and more.

NAV is the per-share value of a fund’s assets minus liabilities, calculated at the end of each trading day.

You can invest in funds through brokerage accounts, fund company websites, or financial advisors.

An expense ratio represents the annual cost of managing a fund, expressed as a percentage of assets under management (AUM).

A prospectus is a legal document that provides detailed information about a fund’s investment objectives, strategies, fees, and risks.

Diversification involves spreading investments across different assets to reduce risk.

Funds offer diversification, professional management, liquidity, and convenience for investors.

A load fee is a sales charge or commission that investors may pay when buying or selling certain mutual funds.

Yes, you can hold funds in tax-advantaged retirement accounts, subject to account rules and regulations.

A closed-end fund is a type of investment company with a fixed number of shares that are traded on stock exchanges.

An open-end mutual fund continuously issues new shares and buys back existing shares at the NAV.

A no-load mutual fund does not charge a sales commission or load fee to investors.

Front-load funds charge a sales commission when you buy shares, while back-load funds charge when you sell (often referred to as “load funds”).

An index fund aims to replicate the performance of a specific market index, such as the S&P 500, by holding the same securities.

An actively managed fund is managed by professionals who actively make investment decisions to achieve specific goals.

A bond fund primarily invests in bonds, providing income to investors through interest payments.

A money market fund invests in low-risk, short-term debt securities and is known for capital preservation and liquidity.

A sector fund concentrates on a specific industry or sector, such as technology or healthcare.

A target-date fund is designed to align with an investor’s retirement date and adjusts its asset allocation over time to become more conservative as the target date approaches.

ETFs are traded on stock exchanges throughout the day, while mutual funds are priced once daily.

An index ETF tracks a specific market index and aims to replicate its performance.

A leveraged ETF aims to amplify the returns of an underlying index using financial derivatives and leverage.

An inverse ETF aims to profit from the decline of an underlying index or asset class.

Yes, you can short sell ETFs by borrowing shares from a broker and selling them with the intention of buying them back at a lower price.

A commodity ETF provides exposure to physical commodities like gold, oil, or agricultural products.

An international ETF offers exposure to foreign markets, allowing investors to diversify globally.

Smart-beta ETFs use alternative index construction techniques to target specific factors like value, growth, or low volatility.

Thematic ETFs focus on specific trends, themes, or sectors, such as renewable energy or cybersecurity.

The bid-ask spread is the difference between the highest price a buyer is willing to pay and the lowest price a seller is willing to accept for an ETF.

You can place market orders (buy/sell at current market price) or limit orders (buy/sell at a specific price or better) to trade ETFs.

Yes, there may be brokerage commissions and potential bid-ask spreads when trading ETFs.

ETFs are known for tax efficiency, often having lower capital gains distributions compared to mutual funds.

Yes, you can hold ETFs in tax-advantaged retirement accounts, subject to account rules and regulations.

Market makers help facilitate liquidity by quoting buy and sell prices for ETF shares on exchanges.

ETF providers typically publish information on their websites, including the composition of their funds.

As of my last knowledge update in September 2021, the SPDR S&P 500 ETF Trust (SPY) was one of the largest ETFs by AUM, tracking the S&P 500 index.

ETFs may distribute dividends to shareholders, which can include interest income, capital gains, or dividend income from the underlying assets.

ETF expense ratios represent the annual cost of managing an ETF, expressed as a percentage of assets under management (AUM).