A mutual fund is a type of professionally managed collective investment that pools the money of many investors and places it in stocks, bonds, short-term money market instruments and/or other securities.[1 ] The mutual fund will have a fund manager, who regularly trades the collected money and after realizing, capital gains or losses are distributed in the form of dividends to individual investors. Currently, the global value of all mutual funds is over $26 trillion. [2]Since 1940, there have been three basic types of investment companies in the United States: open-end funds, also known in the United States as mutual funds; mutual funds (UIT); and closed-end funds. Similar funds also operate in Canada. However, in the rest of the world, mutual fund is used as a generic term for various types of collective investment vehicles, such as unit trusts, open-ended investment companies (OEICs), unit insurance funds and undertakings for collective investment in transferable securities . securities (UCITS). Average Annual Return U.S. mutual funds use SEC Form N-1A to report compound annual average rates of return for 1-year, 5-year, and 10-year periods as the “average annual total return” for each fund. The following formula is used:[6]P(1+T)n = ERVWhere:P = a hypothetical initial payment of $1,000.T = average annual total return.n = number of years.ERV = final repayable value of a hypothetical $1,000 payment made at the beginning of the 1, 5 or 10 year periods at the end of the 1, 5 or 10 year periods (or fractional share). Turnover is a measure of the fund's securities transactions, usually calculated over a one-year period and expressed as a percentage of net asset value. This value is usually calculated as the value of all transactions (buy, sell) divided by 2 divided by the fund's total holdings; that is, the fund counts one security sold and another security purchased as a "turnover." Therefore turnover measures the replacement of shareholdings. In Canada, according to NI 81-106 (disclosure required for investment funds) the turnover ratio is calculated based on the lesser of purchases or sales divided by the average portfolio size (including liquidity). Mutual funds incur similar expenses to other companies. A mutual fund's fee structure can be broken down into two or three main components: management fees, non-management fees, and 12b-1/non-12b-1 fees. All charges are expressed as a percentage of the fund's average daily net assets. Fund management fee is usually synonymous with the contractual investment advisory fee charged for managing a fund's investments.