Mutual Fund

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DEFINITION of 'Mutual Fund'

An investment vehicle that is made up of a pool of funds collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and similar assets. Mutual funds are operated by money managers, who invest the fund's capital and attempt to produce capital gains and income for the fund's investors. A mutual fund's portfolio is structured and maintained to match the investment objectives stated in its prospectus.

BREAKING DOWN 'Mutual Fund'

One of the main advantages of mutual funds is that they give small investors access to professionally managed, diversified portfolios of equities, bonds and other securities, which would be quite difficult (if not impossible) to create with a small amount of capital. Each shareholder participates proportionally in the gain or loss of the fund. Mutual fund units, or shares, are issued and can typically be purchased or redeemed as needed at the fund's current net asset value (NAV) per share, which is sometimes expressed as NAVPS.

Are you interested in Mutual Funds? Check out How To Pick A Good Mutual Fund and our Mutual Funds Tutorial for more information!

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RELATED FAQS
  1. Do mutual funds pay dividends or interest?

    Depending on the type of investments included in the portfolio, mutual funds may pay dividends, interest, or both. Types ... Read Full Answer >>
  2. What are Vanguard's Admiral Shares?

    Admiral Shares represent a separate class of mutual funds shares administered by Vanguard that offer lower fees compared ... Read Full Answer >>
  3. Do variable annuities guarantee returns of principal?

    Variable annuities are subject to the ups and downs of the market, so they do not guarantee returns of principal. To mitigate ... Read Full Answer >>
  4. Are variable annuities guaranteed?

    Because they are market-based, variable annuities do not come with inherent guarantees. Investors, however, may purchase ... Read Full Answer >>
  5. Can you invest in mutual funds on Scottrade?

    Scottrade, Inc. offers investors a versatile selection of mutual funds in which they can invest. Scottrade allows investors ... Read Full Answer >>
  6. How safe are variable annuities?

    Life insurance companies are facing a challenging environment. Those that sell variable annuities have been able to mitigate ... Read Full Answer >>
  7. Does Fidelity have mutual funds?

    Fidelity offers clients all asset classes of mutual funds, ranging from domestic equity to specialized sectors. The offering ... Read Full Answer >>
  8. Do financial advisors get paid by mutual funds?

    Financial advisors are reimbursed by mutual funds in exchange for the investment and financial advice they provide. A financial ... Read Full Answer >>
  9. Are mutual funds considered retirement accounts?

    Unlike a 401(k) or Individual Retirement Account (IRA), mutual funds are not classified as retirement accounts. Employers ... Read Full Answer >>
  10. Do mutual funds invest only in stocks?

    Mutual funds invest in stocks, but certain types also invest in government and corporate bonds. Stocks are subject to the ... Read Full Answer >>
  11. Can mutual funds invest in IPOs?

    Mutual funds can invest in initial public offerings (IPOS). However, most mutual funds have bylaws that prevent them from ... Read Full Answer >>
  12. Are there mutual funds that take advantage of merger arbitrage?

    A few select mutual funds focus investing on merger arbitrage. Among these are the Merger Fund, the Arbitrage Fund and the ... Read Full Answer >>
  13. What are some of the most common mutual funds that give exposure to the retail sector?

    There are a number of mutual funds that give exposure to the retail sector. Three of the most popular funds are the Fidelity ... Read Full Answer >>
  14. What are the most popular mutual funds that give exposure to the utilities sector?

    Some of the most popular mutual funds that provide exposure to the utilities sector include American Century Utilities, Prudential ... Read Full Answer >>
  15. What are some popular mutual funds that give exposure to the telecommunications sector?

    Some of the most popular mutual funds that give investors exposure to the telecommunications sector include the Fidelity ... Read Full Answer >>
  16. What are common mutual funds an investor should consider for investing in oil and ...

    Among popular oil and gas mutual funds for investors to consider, some of the best performing funds, as of January 2015, ... Read Full Answer >>
  17. In what ways are ETFs more tax efficient than mutual funds?

    Exchange-traded funds (ETFs) can be more tax-efficient than standard mutual funds. In general, conventional ETFs have fewer ... Read Full Answer >>
  18. Who regulates the various types of exchange traded funds (ETFs)?

    The Securities and Exchange Commission (SEC), under the Securities Act of 1933, regulates the vast majority of exchange-traded ... Read Full Answer >>
  19. What is the most important section in an investment company's prospectus?

    It is important for investors to examine all information contained within an investment company’s prospectus. However, the ... Read Full Answer >>
  20. What are some popular mutual funds that give exposure to the drugs sector?

    The pharmaceutical industry has experienced outstanding growth in the 10 years leading up to 2015, consistently outperforming ... Read Full Answer >>
  21. What can cause the rate of return to be negative?

    Several factors can cause an investment to have a negative rate of return. Poor performance of a company or companies, turmoil ... Read Full Answer >>
  22. What are the primary risks to understand when investing in the automotive sector?

    Investors in the automotive sector should be aware of strong competition among U.S. and foreign automakers. The U.S. market ... Read Full Answer >>
  23. Why is a mutual fund's expense ratio important to investors?

    A mutual fund's expense ratio is very important to investors because fund operating and management fees can have a large ... Read Full Answer >>
  24. When is an expense ratio considered high and when is it considered low?

    A number of factors determine when an expense ratio is relatively high or low, but a good, low expense ratio is generally ... Read Full Answer >>
  25. What are the disadvantages of an index fund over an actively managed fund?

    An actively managed fund – more commonly referred to as a mutual fund – has a higher risk versus reward value, is much less ... Read Full Answer >>
  26. How can I invest in credit card companies?

    In a consumer economy fueled by credit, a natural place to look for a lucrative investment opportunity is with credit card ... Read Full Answer >>
  27. What are the most popular mutual funds that give exposure to the railroads sector?

    The railroad industry makes up nearly half of North American freight transportation from city to city and can provide dependable ... Read Full Answer >>
  28. How often should I be checking the NAV of my mutual fund shares?

    You can check the net asset value (NAV) of your mutual fund shares anywhere from daily to annually. It is commonly recommended ... Read Full Answer >>
  29. What is the difference between a REIT and a real estate fund?

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  30. What are typical trust fund management fees?

    The asset management fee is a straightforward fee charged on a trust fund. It is expressed as a fixed percentage of the total ... Read Full Answer >>
  31. What was the first mutual fund?

    Although it is uncertain, many trace the creation of the first mutual fund back to Dutch merchant Adriaan Van Ketwich. In ... Read Full Answer >>
  32. When did mutual funds come to the U.S.A.?

    On March 21,1924, the Massachusetts Investors Trust was incorporated, marking the birth of the American mutual fund industry. ... Read Full Answer >>
  33. How do I find mutual funds that track indexes?

    The two best sources for finding index funds are Fidelity Investments and Vanguard.Of the 57 index funds in investment research ... Read Full Answer >>
  34. Is it possible to buy mutual funds using a margin account?

    Because of the pricing/trading mechanisms used with mutual funds, they cannot be bought and sold like stocks. When trading ... Read Full Answer >>
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