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What Is Mutual Fund

Mutual funds are pools of money. Money from many different individual investors can be pooled with money from, say, the retirement fund of a global corporation.

This money is managed full time by professionals who are paid for their financial management expertise.

Mutual funds invest in a portfolio of stocks (equities), bonds, or money market instruments. You, the shareholder, own a proportionate part in much the same way you would be an owner of a company in which you buy stock.

If a stock fund invests in the stocks of 50 companies, you own a part of those 50 companies. You share ownership with other individuals and sometimes with institutional investors.

Investing in mutual funds has similarities to investing in stocks, but there is one difference: Most funds are "open-ended." An open-ended fund is one in which there is no fixed amount of shares outstanding.

Investors can buy shares in an open-ended mutual fund at any time, and in unlimited quantities, as long as the fund is open to new investments. This is in contrast to stocks and closed-end mutual funds, which issue a certain number of shares.