10 Best Mutual Funds Of November 2024

Each share of a mutual fund represents a prorated amount of all the investments within the fund. If 10% of a mutual fund’s portfolio is in shares of Tesla, 5% Comcast (CMCSA) and 2% The Cheesecake Factory (CAKE), each fund investor reaps the appreciation, or loss, for these holdings in equal proportions.

It’s important to remember that you don’t own the underlying securities held by a mutual fund. Instead, you own a share of the fund itself. In the above example, you wouldn’t own the shares of Tesla, Comcast and The Cheesecake Factory; you would own shares of the mutual fund which in turn owns these companies.

Investors receive the profits and income generated by the mutual fund’s holdings through distributions. They can choose to take the distributions as cash or reinvest them in the fund.

Shares of mutual funds trade on stock exchanges like stocks, but they operate a little differently. They trade only once a day, at the market close. They’re not exchanged between investors; instead, you buy and sell them directly with the fund manager.

At the end of each trading day, the fund manager calculates the net asset value, or NAV, of the securities in the fund, then sells or redeems fund shares at this price. For investors, this means that you won’t know the price you’ll pay or receive until after the market closes.