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Mutual Funds

The Basics

How does a mutual fund make money?

The collective investments of the mutual fund may earn dividends on the shares they own and capital gains on shares they purchased and sold (as well as capital losses if they have sold shares at less than the purchase price). The fund also charges a management fee to all shareholders. After subtracting the expenses from the gains, the earnings of the fund are distributed to each investor in proportion to the amount of shares invested. Investors believe that although any one stock or group of stocks in the fund’s portfolio may go up or down, the total gains of the portfolio will be positive over time.



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