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Funds 101: Mutual Fund Basics

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1.
Which of the following does diversification do for a mutual fund?
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Spread risk. By spreading risk among several items in a fund, you can reduce the damage that a downturn in a few of them can cause.
2.
A mutual fund is a(n) _______.
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Package of several types of securities. Although some mutual funds invest only in stocks or bonds, mutual funds as a whole are open to several types of securities.
3.
In the world of mutual funds, what are outstanding shares?
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Shares owned by the public. To be "outstanding" is to be in the public's possession.
4.
Which party hands out dividends to mutual fund investors?
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The transfer agent. If you chose "distributor," remember that this party distributes shares, not dividends.
5.
It is possible to buy shares of a mutual fund directly from the fund instead of through a broker.
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True. Although you can buy shares through a broker, most funds also let you buy shares directly from the funds themselves.