Oct 15 2010

What is a mutual fund?

Category: Finance


A mutual fund is a type of investment that allows a fund manager to collect money from a range of smaller investors and then diversify those funds into various securities. The collection of investments will vary depending on the investment objectives (prospectus) of the fund. Mutual funds are a convenient and cheaper way to diversify a portfolio.

The objective of the mutual fund will determine the payout. As with all investing, the more risk that is inherent in an asset will typically determine the potential return. A riskier investment can yield larger returns as well as larger losses. There are generally three classes of mutual funds.

Equity funds – Mostly individual stocks on various indices.
Fixed-income funds – Mostly federal and corporate bonds/debt.
Money market funds – Mostly liquid, short term debt.

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