A mutual fund is a type of investment vehicle that collects money from multiple investors to invest in a diversified portfolio of securities such as stocks, bonds, and other assets. The portfolio is managed by a professional fund manager, who makes investment decisions based on the investment objectives and strategies of the fund.
When you invest in a mutual fund, you are buying shares in the fund. The value of your investment is determined by the performance of the underlying portfolio of assets held by the fund. The value of mutual fund shares is calculated based on the net asset value (NAV) of the fund, which is the total value of the fund’s assets minus its liabilities divided by the number of shares outstanding.
Mutual funds offer several benefits to investors, including diversification, professional management, and liquidity. By collecting money from multiple investors, mutual funds can offer a diversified portfolio of assets that can help to reduce risk. Professional fund managers have expertise in selecting and managing investments, which can potentially lead to higher returns. Mutual funds also offer liquidity, as investors can buy and sell shares at any time based on the current NAV of the fund.
There are many different types of mutual funds, including equity funds, bond funds, money market funds, and balanced funds. Each type of fund has its own investment objectives, risk profile, and potential returns. It is important to do your research and choose a mutual fund that aligns with your investment goals and risk tolerance.