What Is a Mutual Fund?
A mutual fund pools money from many people and invests it for them in stocks, bonds or both. Each investor owns a slice of the whole pool.
How a mutual fund works
You and thousands of others send money to the fund. A manager, or a fixed set of rules, decides what to buy. If the fund's investments grow 8%, your slice grows about 8%, minus fees.
Mutual fund vs ETF
Both hold many investments. A mutual fund is priced once a day, after the market closes, and you buy it from the fund company. An ETF trades all day on an exchange like a stock. ETFs are often cheaper and more tax-friendly in the US.
Active and index mutual funds
Some mutual funds have managers who pick stocks and try to beat the market. Others are index funds that simply copy a market index. Index funds usually charge much lower fees.
What a mutual fund costs
Look at the expense ratio, the yearly fee. Some funds also charge a fee when you buy or sell, called a load. Over decades, even a 1% fee can eat a big share of your gains.
See it in real companies
Open a company to see what it sells and how it makes money.