Understanding Mutual Fund Lingo

October 21, 2020
Understanding Mutual Fund Lingo

Mutual funds are one of the investment instruments available to you. With them, you can diversify and grow your portfolio, depending on the risk level you’re willing to take.

Maybe you already invest in mutual funds and have already run into certain terms you’re not familiar with.1 Here’s a helpful list of some of the more frequently used terms.

12b-1 fee:  A fee collected by the mutual fund house, to help pay for a fund’s marketing and distribution expenses. The amount of a fund’s 12b-1 fee, if any, is specified in its prospectus and is taken from fund assets.

Average annual total return: The fund’s average yearly total return, net of most fees and expenses (other than sales charges and redemption fees), over a stated period. It assumes that distributions were reinvested and includes dividends, interest and capital gains.

Closed-end funds: Funds that offer only a fixed number of shares for sale. The shares are bought and sold on stock exchanges (or over-the-counter). Compare to open-end funds (see below).

Distributions: Payments made to investors from the fund’s cash flow. Distributions may consist of earnings from dividends, interest, net capital gains, and, sometimes, return of capital.

Expense ratio: The percentage of a fund’s assets that went to pay management fees, 12b-1 fees, and other administrative costs. Brokerage costs and sales charges are not reflected in the expense ratio.

Index fund: A type of mutual fund that attempts to match the investment makeup and performance of a benchmark index, such as the S&P 500.2 Turnover rates and expenses are generally lower relative to actively managed funds.

Load funds: Mutual funds that charge a commission when shares are bought or sold.

Net asset value (NAV): The per-share value of a mutual fund calculated using total fund assets divided by outstanding fund shares as of a specified date

No-load funds: Mutual funds that do not charge a sales commission.

Open-end funds: Mutual funds that sell as many shares as investors want to buy. These funds grow larger as investors put money in and get smaller when investors sell shares back to the fund (“redeem” shares). Compare to closed-end funds (see above).

Portfolio turnover: Percentage of underlying fund holdings that were traded over a stated period (usually one year).

Prospectus: Filed with the Securities Exchange Commission, this official document includes important information about a mutual fund. You should always read a fund’s prospectus carefully before you invest or send money.

Sector weightings: The percentages of assets in a fund’s portfolio that are invested in each of different industries.

Total return: Indicates how well a fund has performed over a stated period. Total return takes into account changes in net asset value, dividends, and capital gains distributions. The calculation assumes the reinvestment of dividends and capital gains distributions.

Your financial professional can provide more information about these and other mutual fund terms. You can also visit popular.com/401k, where you’ll find a number of investment options.


1 Consider a mutual fund’s investment objectives, charges, expenses, and risks carefully before investing. The fund’s prospectus, which can be obtained from your financial representative, contains this and other information. Read the prospectus carefully before you invest or send money. Shares, when redeemed, may be worth more or less than their original cost.

2The Standard and Poor’s 500 Stock Index is an unmanaged index representing the performance of the stocks of 500 major corporations.
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