Mutual Fund
Definition
An investment vehicle that pools money from many investors to purchase a diversified portfolio of stocks, bonds, or other securities.
A mutual fund is a professionally managed investment fund that collects money from many investors to buy a diversified portfolio of securities. Each investor owns shares in the fund proportional to their investment. Mutual funds are priced once daily at market close based on their net asset value (NAV).
Mutual funds can be actively managed (a portfolio manager selects investments to try to outperform the market) or passively managed (the fund tracks an index). Actively managed funds charge higher fees, typically 0.5% to 1.5% annually, while index mutual funds can charge as little as 0.03%.
When choosing mutual funds, consider the expense ratio, historical performance, fund manager track record, minimum investment requirements, and tax efficiency. Load funds charge sales commissions, while no-load funds do not. For most investors, low-cost index mutual funds provide the best combination of diversification, performance, and fees.
Related Calculators
Related Terms
ETF (Exchange-Traded Fund)
financeAn investment fund that trades on stock exchanges like individual stocks, typically tracking an index, sector, commodity, or other asset class.
Index Fund
financeA type of mutual fund or ETF designed to track the performance of a specific market index, offering broad diversification at low cost.
Diversification
financeAn investment strategy that reduces risk by spreading investments across different asset classes, industries, and geographic regions.
Portfolio
financeA collection of financial investments such as stocks, bonds, commodities, cash, and cash equivalents held by an individual or institution.
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