Mutual fund values rise and fall along with the securities in the fund. An investor may prefer to invest in mutual funds for diversification, to take advantage of the professional management, the low cost of shares, or the ease with an investor can buy and sell shares. Each mutual fund has an objective which determines the types of securities it invests in. The fund's objectives must be stated clearly in the prospectus. More than 6,000 mutual fund are available, all with different objectives, securities owned, levels of risk, and levels of earnings.
All mutual funds have management fees and some have additional fees when shares are bought and sold.
The prospectus must disclose all fees and costs. A financial service company may offer a number of funds with different objectives and the investor may switch from one fund to another within the same family at little or no expense. A futures contract is a commitment to buy or sell a specific amount of a commodity at a specific future date and price. Stock options are contracts giving the purchaser the right to buy or sell a stock at a specific price within a certain period of time. Like all futures contracts a stock option can be a very complicated and risky investment.