What is a mutual fund?
A mutual fund is a pool of investments such as stocks, bonds or other funds. Professional portfolio managers manage the investments held by the mutual fund. They generally use a prospectus to sell mutual fund units or shares. Mutual funds are open-ended, which means that the fund continuously sells and redeems its securities.
Mutual funds offer investors a variety of goals, depending on the fund's investment objective. Some funds, for example, seek to generate income on a regular basis. Others seek to preserve an investor's money. To achieve its objective a fund may invest mainly in government bonds, stocks from large companies or stocks from certain countries. Some funds may invest in a mix of stocks and bonds, or other mutual funds.
Advantages
Mutual funds can make it easy to own a diversified pool of investments. Diversification is a key investing principle that allows you to spread the risk among different investments.
When you buy a mutual fund, you have the advantage of leaving the investment decisions to a professional portfolio manager.
Disadvantages
Investing in mutual funds involves risk-you could lose money on your investment. The value of a mutual fund will change as the value of their investments goes up and down. Depending on the fund, the value can change quickly and by a large amount.
You pay fees will reduce your return on your investment, and you will pay them whether or not the fund performs well.
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