Friday, May 8, 2009

Mutual funds

Mutual funds sell shares to investor, and invest the proceeds in a wide choice of assets. Owners of shares receive pro rate shares of the earnings from these assets, minus management and other fees assessed by the fund. Some mutual funds, called money market mutual funds, invest in short-term, safe assets such as U.S. Treasury bills and large bank certificates of deposit. Largely for historical reasons, money market mutual funds are not considered depository institutions even though shareholders are often allowed to write checks on their accounts. Unlike depository institutions, money market mutual funds do not promise that the price of share will stay constant, but in fact, the price of each share tends not to fluctuate over time like prices of stock mutual funds do. Fund managers work to keep share prices constant, and owners of these 'shares' receive a portion of the earnings derived from the assets bought with the money received for the shares. These funds enjoyed widespread popularity in the late 1970s and early 1980s, when they grew at a rate of 37 percent per year.

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