Mutual funds receive investor money, which they invest in a portfolio of stocks or other assets. In exchange, investors receive shares in the fund. For example, when a fund starts, investors may pay $100 for each share of the fund that they receive. There are two types of mutual funds; open-end funds and closed-end funds. Open-end mutual funds, allow investors to buy into the fund, after the fund has already started operating and investing. Open-end funds, also let existing investors withdraw their money from the fund directly. When people want to invest, the open-end fund creates new shares for the investors to buy. When investors wish to withdraw their money, they turn in their shares and the fund returns the cash value of those shares back to the investors. The fund also removes these shares from his total shares outstanding. Let’s walk through an example. Let’s pretend a new open-end fund initially has 10 investors and each investor buys one share of the fund at $100 per share. So, the fund takes this $1,000 to invest in a portfolio of stocks. We say it has $1,000 in assets under management or AUM. A month later, let’s say the portfolio’s value has increased to $1,200. So, each of the ten shares is worth $120. A new investor wants to buy a share of the fund. So, they pay $120 for a share and not 100. In other words, the new investor pays for the current price of the share. The fund has now issued 11 shares and has $1,200 plus 120 or $1,320 in his portfolio.