What is a Mutual Fund?
A mutual fund is an investment vehicle made up of a pool of money collected from many different investors.
A professional manager is in charge of the mutual fund and is responsible for investing the money in different types of assets, including stocks, bonds, commodities, and real estate. The goal is to produce capital gains and/or generate income for those who have invested in the fund.
Each mutual fund has a portfolio which is structured and maintained to help investors meet specific objectives and goals. This is often detailed in a mutual fund prospectus.
How it works
An investor buys shares in the mutual fund. The shares represent a portion of ownership in the assets owned by the fund.
Primary structures and types of mutual funds
There are three primary structures for mutual funds, which are detailed in the infographic:
- Open-end funds
- Closed-end funds
- Unit investment trusts
You’ll also find a breakdown of the four key types of mutual funds:
- Bond funds
- Money market
- Stock funds
- Hybrid funds
Mutual funds versus ETF and stocks
Mutual funds differ from ETF in a variety of ways:
- Investors buy mutual fund shares from the fund itself or through a fund broker, rather than from other investors, which is the case with stocks and ETFs.
- The minimum investment for stocks and ETFs are just one share; a mutual fund might require an investment of $1,000 to $5,000.
- Mutual funds can only be traded once a day after the markets close; stocks and ETFs are traded during the trading day.
- A mutual fund’s NAV (net asset value) is determined at the end of the trading day, while stocks and ETFs fluctuate during the trading day.
In this infographic, you’ll also gain insight on mutual fund considerations including fees and how to choose the best fund for you, as well as the history of mutual funds and the benefits of investing in them.
Have you ever invested in mutual funds?