What is a Mutual Fund?

• Mutual Fund (simplified)
– A particular collection of financial instruments controlled and created by a manager with fiduciary responsibilities to buyers (it is a list, a virtual asset of virtual assets)

Characteristics of this List:

• Stocks and / or Bonds and / or Cash (limited to some particular blend)

• Focused on particular ‘sector’ (industries and sub-industries)

• Controlled by geographic boundaries (regions, countries, continents)

• Limited by charter to particular ‘styles’ (think style boxes)

• Restrained in types of trades and % Cash (usually no derivatives, shorting, options)

• In exchange for the manager (cost overhead), Buyers expect
– Preservation and Growth of their capital (above averages)
– Returns in the forms of dividends, capital gains distributions, …
– Steady, smooth NAV, no surprises, low volatility
– Salability / liquidity

•Value is “created” by the superimposition of the collective performance of the individual virtual assets as a grouping (list)
– This is real value as perceived by the prospective buyers of funds
- The anticipation is that by collecting like assets, no one asset will weigh heavily on overall performance, up or down, thus reducing volatility while also (hopefully) not decreasing returns

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