Mutual funds are pooled investment vehicles. Here’s how they work:
● A group of investors pool their money, by investing in a mutual fund.
● The mutual fund buys a basket of investments, potentially including bonds, stocks, or
money market securities.
● The mutual fund generates returns, which are either passed back to the investors in the
form of distributions, or reinvested in the fund.
Mutual funds come with a range of benefits:
● They are generally affordable—with low or moderate fees.
● Because they can invest in a wide range of securities, they are often well diversified.
● They are easy to cash out of, because investors can generally withdraw their money on
any day the market’s open.
● They are professionally managed, often with one or more portfolio managers and a team
of analysts and researchers.
● And they are well regulated—facing restrictions on what they may own and rules on
required disclosures they must provide to investors.