Investment Company – a corporation, trust, or partnership in which investors with similar financial goals pool their funds so as to utilize professional management and to diversify their investments in securities and other investments.
Mutual Fund – an investment company that combines the funds of investors who have purchased shares of ownership in the investment company and then invests that money in a diversified portfolio of stocks and bonds issued by other corporations or governments.
Portfolio – consists of a collection of securities and other investment alternatives.
Automatic Reinvestment – allows for the automatic use of ordinary income dividend distributions, capital gains distributions, and interest to buy additional shares of the fund without paying any commissions.
Figure 15.2: The Wisdom of Automatic Reinvestment
Switching Privileges within a Mutual Fund Family
Switching Privilege (or Exchange Privilege) – permits mutual fund shareholders to easily swap shares on a dollar-for-dollar basis for shares in another mutual fund within a mutual fund family.
Exchange Fee – a small charge, typically $5 or $10 per transaction, on a transfer from one fund to another.
Mutual Fund Family – exists when the same management company operates a variety of mutual funds, each with its own investment objectives.