A mutual fund is an investment fund that pools money from many investors to purchase securities. The term is typically used in the United States, Canada, and India, while similar structures across the globe include the SICAV in Europe. Mutual funds are often classified by their principal investments: money market funds, bond or fixed income funds, stock or equity funds, or hybrid funds. Funds may also be categorized as index funds, which are passively managed funds that track the performance of an index, such as a stock market index or bond market index, or actively managed funds, which seek to outperform stock market indices but generally charge higher fees.
Mutual funds are regulated by governmental bodies and are required to publish information including performance, comparison of performance to benchmarks, fees charged, and securities held. A single mutual fund may have several share classes by which larger investors pay lower fees. Hedge funds and exchange-traded funds are not mutual funds, and each is a distinct type of investment vehicle with its own unique characteristics.
Mutual funds offer professional investment management and potential diversification. They are an affordable way to help diversify your portfolio, and they let you access a wide mix of asset classes, including domestic and international stocks, bonds, and commodities. Mutual funds can be a cost-effective way to invest, and they allow you to buy or sell your fund shares once a day at the close of the market at the fund’s NAV.
