Advisor
The organization employed by a mutual fund to give professional advice on the fund's investments and to supervise the management of its assets.

Automatic Investment Plan
A plan offered by most mutual funds where as little as $50 a month is automatically deducted from an investor’s bank account and invested in the mutual fund of their choice.

Automatic Reinvestment
A service that most mutual funds offer whereby a shareholder's income dividends and capital gains distributions are automatically reinvested in additional shares.

Benchmark
An unmanaged group of securities whose performance is used as a standard to measure investment performance. Commonly known as a market index. Some well-known benchmarks are the Dow Jones Industrial Average and the S&P 500.

Capital Gain
Profit that results when the price of a security held by a mutual fund rises above its purchase price. If the security is sold, then the capital gain is realized; if the security is still being held, the gain is unrealized. If the security has been held for more than a year, the gain is long-term; otherwise it is short-term. A capital loss occurs when the price of a security falls below its purchase price and it is sold.

Capital Gains Distributions
Payments made usually at the end of the year to mutual fund shareholders of gains realized on the sale of securities in the mutual fund portfolio.

Capital Growth
A rise in market value of a mutual fund's securities reflected in its Net Asset Value (NAV) per share.

Confirm Date
The date the fund processed your transaction, typically the same day or the day after your Trade Date.

Coverdell Education Savings Account (ESA)
An account which can be set-up by an individual or business to save, potentially tax-free, for a minor’s education expenses.

Distributor
An individual or a corporation serving as principal underwriter of a mutual fund's shares, buying shares directly from the fund, and reselling them to other investors.

Distributions
Can be used to mean either withdrawals made by the owner from an individual retirement account (IRA), or payments of dividends and/or capital gains by a mutual fund.

Diversification
A basic risk management tool in which an investor maintains a mix of common stocks, bonds money markets and other investments to reduce potential risk.

Dollar-Cost Averaging
The technique of investing a fixed sum at regular intervals regardless of stock market movements. This reduces average share costs to the investor, who acquires more shares in periods of lower security prices and fewer shares in periods of high prices. In this way, investment risk is spread over time.

Ex-Dividend Date
The date on which a fund's Net Asset Value (NAV) will fall by an amount equal to the dividend and/or capital gains distribution (although market movements may alter the fund's closing NAV somewhat). Most publications which list closing NAVs place an "X" after a fund's name on its Ex-Dividend Date.

Expense Ratio
The ratio of total expenses to net assets of the fund. Expenses include management fees, the cost of shareholder mailings and other administrative expenses. The ratio is listed in a fund's prospectus. Expense ratios may be a function of a fund's size rather than of its success in controlling expenses.

401(k) Plan
A tax-deferred retirement plan that can be offered by businesses of any kind. A company's 401(k) plan can be a "cash election" profit-sharing or stock bonus plan, or a salary reduction plan. A 401(k) plan carries many unique advantages for both employer and employee.

403(b) Plan
Section 403(b) of the Internal Revenue Code allows employees of public school systems and certain charitable and nonprofit organizations to establish tax-deferred retirement plans which can be funded with mutual fund shares.

Income Dividend
Payment of interest and dividends earned on the fund's portfolio securities after operating expenses are deducted.

Individual(k) Account
This 401(k) plan allows an owner to contribute both a profit sharing component and a salary deferral component.

Individual Retirement Account (IRA)
A personal, tax-sheltered retirement account available to individuals. Depending on individual circumstances, IRA contributions may be fully or partially tax deductible. Withdrawals before the investor reaches age 59 1/2 are generally subject to a penalty imposed by the federal government. Types of IRAs include the Traditional IRA and Roth IRA.

Individual Retirement Account (IRA) Rollover
A provision in the IRA law allowing individuals who receive lump-sum payments from pension or profit-sharing plans to rollover into, or invest that sum in, an IRA. IRA funds can be rolled over from one investment to another.

Investment Company
A corporation, partnership or trust that invests the pooled monies of many investors. It provides greater professional management and diversification of investments than most investors can obtain independently. Mutual funds, or "open-end" investment companies, are the most popular form of investment company.

Load Fund
A mutual fund that levies a sales charge up to 8.5%. There are various types of load funds including a front-end load where the fee is levied when buying shares; and a back-end load where the fee is charged when selling shares.

Long-Term Capital Gain
A profit on the sale of a mutual fund share that has been held for more than one year.

Management Fee
The amount a mutual fund pays to its investment advisor for services rendered, including management of the fund's portfolio.

Mutual Fund
An open-end investment company that buys back or redeems its shares at current Net Asset Value (NAV). Most mutual funds continuously offer new shares to investors.

Net Asset Value (NAV)
The price of mutual funds shares must be calculated every business day that the New York Stock Exchange is open. The share price, referred to as the Net Asset Value (NAV), is the market value of all a fund’s securities, plus receivables, minus liabilities, divided by the total number of shares outstanding (shares owned). The NAV changes as the value of a fund’s portfolio holdings rise or fall.

No-Load Fund
A commission-free mutual fund that sells its shares at Net Asset Value (NAV), either directly to the public or through an affiliated distributor, without the addition of a sales charge.

Payable Date
The date on which distributions are paid to shareholders who do not want to reinvest them. This date can be anywhere from one week to one month after the Record Date.

Portfolio Manager
A professional hired by the mutual fund advisor to make investment decisions concerning the purchase and sale of securities for the mutual fund portfolio in accordance with the fund's objectives.

Portfolio Turnover Rate
The rate at which the fund's portfolio securities are changed each year. Aggressively managed funds generally have higher portfolio turnover rates than do conservative funds which invest for the long term. High portfolio turnover rates generally add to the expenses of a fund.

Prospectus
An official document that each investment company must publish describing the mutual fund and offering its shares for sale. It contains information required by the Securities and Exchange Commission (SEC) including fees and expenses of the fund, past performance and how to buy and redeem shares.

Qualified Retirement Plan
A retirement plan established by employers for their employees that meets the requirements of Internal Revenue Code Section 401(a) or 403(a) and is eligible for special tax considerations. The plan may provide for employer contributions, as in a pension or profit-sharing plan, as well as employee contributions. Employers can deduct plan contributions made on behalf of eligible employees on the business's tax return as business expenses. Contributions to such a plan are generally tax-deductible; earnings on such contributions are always tax sheltered until withdrawal.

Record Date
The date the fund determines who its shareholders are; "shareholders of record" who will receive the fund's income dividend and/or net capital gains distribution. Frequently the business day immediately prior to the Ex-Dividend Date.

Redemption Fee
A fee charged by a limited number of funds for redeeming, or buying back, fund shares.

Redemption Price
The price at which a mutual fund's shares are redeemed (bought back) by the fund. The redemption price is usually equal to the current Net Asset Value (NAV) per share. Also called the bid, call or sell price.

Reinvestment Date
The date on which a share's dividend and/or capital gains will be reinvested (if requested) in additional fund shares.

Reinvestment Privilege
A service that most mutual funds offer whereby a shareholder's income dividends and capital gains distributions are automatically reinvested in additional shares.

Risk
The measure of an investor's ability to withstand volatility in the markets. Fenimore defines risk as permanent loss of capital.

Roth Individual Retirement Account (IRA)
An account in which an individual can save money tax-deferred and potentially access the money tax-free. Roth IRAs are used for a variety of purposes, including retirement and education expenses.

SEP (Simplified Employee Pension) Account
An IRA that allows a self-employed individual to potentially contribute more than a Traditional IRA account would allow.

SIMPLE (Savings Incentive Match Plan for Employees) IRA
This type of account allows employers to contribute on behalf of their employees on a tax-deferred basis.

Systematic Withdrawal Plans
Many mutual funds offer withdrawal programs whereby shareholders receive payments from their investments. These payments are usually drawn from the fund's dividend income and capital gain distributions, if any, and from principal only when necessary.

Total Return
The performance of an investment, including yield (dividends, interest, capital gains) as well as changes in per share price, calculated over a designated period of time.

Trade Date
The actual date on which your shares were purchased or sold. The transaction price is determined by the closing Net Asset Value (NAV) on that date.

Traditional Individual Retirement Account (IRA)
An account designed for individuals to save for retirement on a tax-deferred basis with the possibility of yearly contributions being tax-deductible. The facts of your income and participation in any employer retirement plan determine if a contribution is deductible.

Transfer Agent
The organization, usually a bank, which mutual funds employ to prepare and maintain records relating to shareholder accounts. Some mutual fund groups operate in-house transfer agencies.

Underwriter
The organization that acts as the distributor of a mutual fund's shares to broker/dealers and the public.

Uniform Gifts to Minors Act (UGMA) Account
& Uniform Transfers to Minors Act (UTMA) Account
Acts that allow minors to own property such as securities. For parents, grandparents or anyone who would like to set up an investment account for a minor.

Yield
Income or return received from an investment, usually expressed as a percentage of market price, over a designated period. For a mutual fund, yield is interest or dividend before any gain or loss in the price per share.

Many of these definitions are courtesy of the Mutual Fund Education Alliance.