Mutual Fund
A pooled investment vehicle managed by professionals that invests in stocks, bonds, or other securities.
Definition
A mutual fund is an investment vehicle that pools money from many investors to purchase a diversified portfolio of stocks, bonds, or other securities. Managed by professional fund managers, mutual funds offer instant diversification and professional management. Unlike ETFs, mutual funds are priced once daily at market close (NAV). They can be actively managed (fund manager selects investments) or passively managed (tracking an index). Mutual funds charge expense ratios ranging from 0.03% for index funds to over 1.5% for actively managed funds. Load funds charge sales commissions, while no-load funds do not. Over 80% of actively managed mutual funds underperform their benchmark index over 15-year periods.
Related Terms
ETF (Exchange-Traded Fund)
A basket of securities that trades on an exchange like a stock.
InvestingIndex Fund
A mutual fund or ETF designed to track the performance of a specific market index.
InvestingExpense Ratio
The annual fee charged by a fund to cover operating expenses, expressed as a percentage of assets.
InvestingDiversification
Spreading investments across various assets to reduce risk.