A mutual fund is an investment vehicle that pools money from many investors and invests that combined money in a portfolio of assets such as stocks, bonds, or money-market instruments.wikipedia+1
Basic idea
- A mutual fund collects money from numerous investors and uses it to buy a diversified basket of securities that matches the fund’s stated objective, such as growth, income, or capital preservation.finra+1
- Each investor receives shares or units of the fund, representing proportional ownership of the underlying portfolio and a claim on its profits and losses.investor+1
How it works
- The fund is managed by a professional portfolio manager (or team) who selects and monitors the securities in line with the fund’s strategy and risk profile.schwab+1
- The value of each share is called the net asset value (NAV), calculated as the total value of the fund’s assets minus its liabilities, divided by the number of shares outstanding; investors buy and redeem shares at (or based on) this NAV, typically once per business day.bajajfinserv+1
Types of mutual funds
- Equity funds mainly invest in stocks and aim for capital growth, usually with higher risk and volatility than bond or money-market funds.investor.vanguard+1
- Bond (fixed-income) funds invest in government or corporate bonds, focusing more on regular interest income and typically lower volatility than pure equity funds.td+1
- Money-market funds invest in very short-term, high-quality instruments like Treasury bills and certificates of deposit, targeting capital stability and modest income.schwab+1
Advantages
- Professional management allows small investors to benefit from research and active portfolio oversight without needing to select individual securities themselves.ameriprise+1
- Diversification reduces exposure to any single issuer because the fund holds many different securities across sectors, issuers, or asset classes.wikipedia+1
- Convenience and liquidity: most mutual funds allow investors to buy or redeem shares on any business day, and provide standardized reports that make comparison easier.fidelity+1
Risks and costs
- Market risk: the value of mutual fund shares can fall if the prices of the underlying securities decline, and there is no guarantee against loss of principal.finra+1
- Fees and expenses: investors typically pay ongoing expense ratios and sometimes sales charges (loads), which reduce net returns; understanding these costs is essential before investing.investor+1
If you share your risk tolerance, time horizon, and whether you prefer active or passive strategies, a more tailored explanation of which types of mutual funds might fit you can be provided.
- https://www.schwab.com/mutual-funds/understand-mutual-funds
- https://en.wikipedia.org/wiki/Mutual_fund
- https://www.finra.org/investors/investing/investment-products/mutual-funds
- https://www.investor.gov/introduction-investing/investing-basics/investment-products/mutual-funds-and-exchange-traded-funds-etfs/mutual-funds
- https://www.td.com/ca/en/personal-banking/personal-investing/learn/what-is-mutual-fund
- https://investor.vanguard.com/investor-resources-education/mutual-funds/what-is-a-mutual-fund
- https://www.bajajfinserv.in/investments/what-is-a-mutual-fund
- https://www.ameriprise.com/financial-goals-priorities/investing/what-are-mutual-funds
- https://www.fidelity.com/learning-center/investment-products/mutual-funds/what-are-mutual-funds
- https://www.merrilledge.com/investor-education/understanding-mutual-funds