mutual fund: An open-end investment company which pools money from many investors and invests it in a diversified portfolio of shares, bonds and other securities. Investors purchase shares of the mutual fund, and when they wish to divest, investors sell their shares back to the fund. A mutual fund’s investment portfolios are managed by investment advisers registered with the SEC.
index fund: a mutual fund whose goal is to match the performance of a certain market index, like the S&P 500 Composite Stock Price Index, the Russell 2000 Index, or the Wilshire 5000 Total Market Index.

growth fund: a fund structured to appreciate over time which typically invest in stocks of companies with a high potential for growth. Aggressive growth funds have an even stronger focus on growth and tend to have higher volatility.

diversification: investment jargon for not keeping all your eggs in one basket. Diversification implies that you distribute your capital among various assets to reduce loss if, through bad luck or judgment, one of them fails you.

portfolio: a group of investments held by an institution or individual.

portfolio management: the process of choosing which investments are included in a portfolio is known as portfolio management or asset allocation, and decisions are based on: (1) whether the investment objective is income, growth or a balance of the two; (2) how much risk the investor is prepared to accept; and (3) what the time horizons of the investors are. Based on the answers to these questions (and others) the portfolio manager decides how to allocate funds between different classes of investment (bonds, shares, property), how to diversify between sectors, countries and shares, how much cash to hold, and when to make changes in the composition of the portfolio. If you are managing your own portfolio of investments, exactly the same considerations apply.

Securities and Exchange Commission (SEC): commission created by Congress to regulate the securities markets and protect investors. It is composed of five commissioners appointed by the president of the United States and approved by the Senate. The SEC enforces, among other acts, the Securities Act of 1933, the Securities Exchange Act of 1934, the Trust Indenture Act of 1939, the Investment Company Act of 1940 and the Investment Advisers Act of 1940.

S&P (Standard & Poor's Corporation): A company that rates stocks and corporate and municipal bonds according to risk profiles and that produces and tracks the S&P indexes. The company also publishes a variety of financial and investment reports. The S&P 500 is a leading stock market index in the U.S.

The Securities and Exchange Commission offers more information about mutual funds on their Web site.

By Kenneth Ng