What is a mutual fund?
A mutual fund is a fund created by an investment company which combines money from many investors and invests it in a group of stocks, bonds, or other investment vehicles. The investment company actively manages the portfolio to meet a desired goal, such as long-term growth or steady dividends. One major benefit is diversification. Many mutual funds also charge a fee when someone buys or sells shares.
When someone buys shares of a mutual fund, they are not directly buying shares of the underlying companies. Instead, they are entitled to a proportional amount of the fund's profits, which are usually distributed two or three times per year.