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Funds 101: Mutual Fund Basics

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1.
Diversification spreads risk among several different investments.
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True. Each investment has its own risk profile.
2.
The holdings and sectors within a mutual fund always rise and fall together.
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False. Due to the diversification of mutual fund holdings, some positions may be positive while others may not be.
3.
Mutual funds will require a minimum purchase amount; however, that minimum can be waived.
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True. Some mutual funds will waive the minimum required investment amount for a number of different reasons, such as setting up an automatic investment plan with them. Refer to the fund's prospectus for additional details on such waivers.
4.
Which of the following pieces of information on portfolio managers is included in a mutual fund prospectus?
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Employment history. This provides a sense of the managers' experience.
5.
If you buy mutual fund shares from another investor instead of from the fund itself, you are buying _______ shares.
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Closed-end. Closed-end fund shares are traded between investors and cannot be bought from the fund itself, except when it sells shares for the very first time.