What is a Mutual Fund?

A mutual fund is essentially a financial vehicle that pools money from many different investors to purchase a diversified portfolio of stocks, bonds, or other securities.

A mutual fund is essentially a financial vehicle that pools money from many different investors to purchase a diversified portfolio of stocks, bonds, or other securities. Think of it as a "basket" of investments. Instead of buying one single apple (a stock), you are buying a slice of a fruit basket that contains apples, oranges, and bananas.

When you invest in a mutual fund, you are buying "units" or "shares" of the fund. The value of these shares is reflected in the fund’s Net Asset Value (NAV), which is calculated at the end of every trading day by taking the total value of all assets in the basket and dividing it by the number of shares outstanding.

Why do people use them?

Professional Management: You don't have to spend hours researching which individual stocks to buy. A professional fund manager does that for you.

Instant Diversification: Even with a small amount of money (e.g., $100), you can own a piece of many different companies. This reduces "single-stock risk"— if one company in the fund goes bankrupt, it only represents a fraction of your total investment.

Liquidity: Mutual funds are liquid investments, meaning you can generally sell your shares back to the fund on any business day.

Mutual fund investing involves risk, including the possible loss of principal. The value of investments will fluctuate and shares, when redeemed, may be worth more or less than their original cost. Past performance does not guarantee future results. Certain mutual funds may invest in fixed income securities that are subject to interest rate risk and credit risk, including the risk that an issuer may fail to make timely payments of interest or principal. Mutual funds typically charge management fees and may include other expenses such as operating expenses and distribution (12b-1) fees. These fees and expenses reduce overall returns. A prospectus containing this and other important information about the fund is available from the fund provider and should be read carefully before investing.