What is a Mutual Fund?
A mutual fund is an investment option where a group of investors pools in their money, to be collectively invested across stocks, shares, bonds, and other securities. There is usually a fund manager who professionally manages and invests this money on their behalf and charges a small fee.
mutual fund managers have access to buying certain stocks or securities that the nonprofessional investor might not have the ability to buy. Buying shares in a mutual fund can let you indirectly own these securities.
Mutual funds are an ideal investment option for people who are looking to invest their money but do not have the time to look for the right investment option. Or for those who do not have a lot of knowledge about the stock market. That’s not to say they’re not ideal for any other sort of investor - in fact, mutual funds can offer pretty solid returns and boost your portfolio.
People who invest in mutual funds don’t have any voting rights over the underlying securities, while stock owners can have the opportunity to get this sway.
Funds fall into two primary categories, that explain when and where people can buy or sell their shares:
Closed-end funds: These funds raise money through an initial public offering, like a company going public might, and then list their shares on an exchange. Closed-end funds tend to be actively managed, and their portfolios often focus on a specific geography or industry. People can trade these shares during the trading day as they could do with a regular stock.
Open-end funds: These are the most common type of funds. Instead of offering their shares in a public offering, open-end funds let investors redeem their shares directly through the fund for both buying and selling.
Despite the variety that’s out there, many mutual funds tend to have one thing in common: diversification. The average fund holds hundreds of securities with the goal of giving investors exposure to a variety of different investments.