A mutual fund is an investment vehicle that pools money from many investors to collectively invest in a diversified portfolio of securities such as stocks, bonds, and money market instruments. Each investor buys shares in the mutual fund, which represent partial ownership of the fund's holdings and income generated
. Mutual funds are managed by professional portfolio managers who make decisions about which securities to buy or sell based on the fund's investment objectives. This professional management allows investors to benefit from expertise and diversification that would be difficult to achieve individually
. Key features of mutual funds include:
- Diversification: By pooling money, investors gain access to a broad range of securities, reducing risk compared to investing in single stocks or bonds
- Liquidity: Shares can typically be bought or sold on any business day at the fund’s net asset value (NAV), which is calculated daily based on the value of the underlying assets
- Variety: Mutual funds come in many types, including equity funds, bond funds, money market funds, index funds (passively managed to track an index), and actively managed funds aiming to outperform the market
- Costs: Investors pay fees such as operating expenses and sometimes sales loads, which can affect returns
Mutual funds are widely used for retirement savings and general investing because they offer a convenient way to invest in a professionally managed, diversified portfolio with relatively low minimum investments
. In summary, a mutual fund is a professionally managed investment fund that pools money from many investors to buy a diversified mix of securities, providing benefits of diversification, professional management, and liquidity
