Definition
A mutual fund is a professionally managed investment vehicle that pools money from multiple investors to purchase securities such as stocks, bonds, and other assets.
Mutual Fund
A mutual fund is a professionally managed investment vehicle that pools money from multiple investors to purchase securities such as stocks, bonds, and other assets.
Key Characteristics
- Pooled Investment: Combines money from many investors to create a diversified portfolio
- Professional Management: Managed by investment professionals who make decisions about asset allocation
- Diversification: Provides instant diversification across multiple securities
- Liquidity: Generally offers daily liquidity, allowing investors to buy or sell shares
Types of Mutual Funds
- Equity Funds: Invest primarily in stocks
- Fixed Income Funds: Invest primarily in bonds and other debt securities
- Balanced Funds: Invest in a mix of stocks, bonds, and sometimes other asset classes
- Index Funds: Aim to track the performance of a specific market index
- Sector Funds: Focus on specific industry sectors
Costs and Expenses
Mutual funds typically charge fees including expense ratios (annual management fees) and sometimes sales loads (commissions). These fees can significantly impact returns over time.
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