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Basics

What is a Mutual Fund?
A Mutual fund is an investment company that makes investments on behalf of
individuals/institutions who share common financial goals.

How does a Mutual Fund work?
The Mutual Fund pools money with other shareholders who have similar
objectives. The professional fund manager then uses this pool to buy
stocks, bonds, etc. to help the investors achieve their objective.

Closed-end vs. Open-end funds
Most mutual funds are open-end and are listed in the Mutual fund section
in publications. Open-end funds are bought/sold through the mutual fund company itself.

Closed-end funds are discussed more in detail later. 

Why invest in a Mutual Fund?

Professional experienced management conduct extensive research/analysis
into financial performance of securities in the fund based on
economic/market trends. They also change the mix of securities from time
to time.

Fund managers reduce risk by holding a diversified mix of stocks, bonds etc.
Investments are liquid; the fund buys back some or all of the shares the investor wants to sell.

Choice of funds, Ease of buying/selling, Low minimum investment (as low as $100), Low management fees (as low as 0.25%).

Services (may not be offered by all): Instant Account information using Toll-free numbers and/or the Internet, Regular statements (including tax statements), Automatic investment, Electronic transfers, Automatic redemption, Telephone purchase/exchange/redemption.

Disadvantages of Mutual funds:

Capital gains distributions are not in your control.
Capital Gains distributions do not depend on how long you held the fund.
In a single year, you could have lost money yet may receive capital gains distributions that are taxable.

Anatomy of a Mutual Fund

a. Fund Symbol

5 alphabets usually ending in X. e.g. FCNTX is the symbol for Fidelity Contrafund. The symbol for the mutual fund can be found in Yahoo Symbol Lookup. Note- some funds not sold in all states, some have no symbols.

b. Net Asset Value (NAV)

The NAV is the closing price of a mutual fund and is calculated every trading day by dividing the fund's total assets to the number of shares. The buy or sell price is the NAV determined at the next close of the market. If the fund symbol is known go to Yahoo, type in the symbol to find the NAV of the fund.

For mutual funds, fractional shares may be purchased depending on the NAV at the market close. For example, $1000 buys 79.745 shares at at NAV of 12.54. This is unlike purchasing stocks where the number of shares are specified, usually round numbers like 100 or 200.