What are the two basic types of Mutual Funds?

• Open-end Mutual Fund

• Closed-end Mutual Fund

Open-end mutual funds continuously accept new investors' deposits and redeems outstanding shares.   There is not a fixed number of mutual fund shares issued.  There is also no secondary trading market for these mutual fund shares.  These shares are not listed on a stock exchange.  You can only buy open-end mutual fund shares from the fund manager or from a security firm that is an authorized sales agent.  Each share your purchase is a new share, not a redeemed share that is resold.

• It is not the demand for the mutual fund shares.  It is the supply and demand for the securities that make up the mutual fund. 

• The value of each share of the mutual fund is called the net asset value (NAV) (also called the fund's "bid price").  The NAV is determined daily by dividing the current market value of all securities owned in the fund (minus operating expenses, management fees, commissions, legal fees, etc.) by the number of outstanding shares.

• When you want to purchase mutual fund shares, you pay the fund's public offering price (POP) (also called the fund's "ask price").  The POP may be higher than the NAV.  In this case, a sales charge is included in the POP.  If the sales charge is included in the POP, the mutual fund is called a front-end load fund.  Some funds asses a back-end load (also called a contingent deferred sales charge.)  This charge is assessed when you redeem shares within a relatively short amount of time (like 4-5 years) after purchasing them.  A pure no-load fund has neither a front-end nor a back-end load.  All the investment is used to buy shares of the mutual fund.
• One very popular open-end, no-load fund is the money market fund.  This fund invests in commercial paper, government securities, bank certificates of deposit and other highly liquid and safe securities, then pays its investors a corresponding amount of interest on their investment.  The money market fund offers investors an interest rate that fluctuates with the market.