A mutual fund is an investment fund that pools investors’ money to buy a portfolio of stocks, bonds, or other securities.
Each investor owns shares or units representing a proportional interest in the fund’s portfolio. A professional investment manager, following the fund’s stated objective, selects and manages the holdings. Funds may focus on particular assets, industries, countries, or strategies, or may seek to track a broad market index.
Mutual funds generally calculate a net asset value, or NAV, for each trading day. Investors typically buy or redeem fund shares at the next calculated NAV, rather than trading continuously throughout the day on a stock exchange. This differs from an exchange-traded fund, whose shares trade on an exchange during market hours.
Mutual funds can make diversification easier because one purchase may provide exposure to many securities. They still carry investment risk, including the possibility of losing money. Investors should also consider fees, such as expense ratios and any sales charges, because costs reduce returns over time.