GLOSSARY // Market Structure
Mutual Fund
A mutual fund pools money from many investors into a professionally managed portfolio, priced once per day at net asset value (NAV) after the close. Enter an order at 10 a.m. or 3:59 p.m. and you get the same price: that evening's NAV. There is no intraday trading.
The category splits into index funds, which replicate a benchmark for as little as 0.02-0.10% a year, and actively managed funds, which pay a manager to beat the benchmark and charge 0.5-1.5% for the attempt. The long-run scoreboard is lopsided: across 15-year periods, most active US large-cap funds trail the S&P 500 after fees.
Structural quirks matter for taxable accounts. Mutual funds distribute realized capital gains to all shareholders — you can owe taxes on gains you never sold, a problem the ETF creation/redemption mechanism largely avoids. Funds may also carry minimum investments and short-term redemption fees.
An investor submits a $5,000 buy order for an index mutual fund at 11 a.m. while the market is down 1.5%. The market recovers to flat by the close; the order executes at that day's closing NAV of $151.20, buying 33.069 shares — the midday dip was never available to capture.
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Educational only — not financial advice. Definitions simplified for clarity; markets are messier than definitions.