Investing & Markets

What is Mutual Fund?

A mutual fund collects money from many investors to buy a diversified mix of stocks, bonds, and other securities. The fund's holdings are managed by professional investment advisers to meet specific investment objectives. Investors purchase shares directly from the fund rather than on public exchanges.

Mutual funds are regulated under the Investment Company Act of 1940 and must register with the SEC. Unlike stocks or ETFs, mutual fund shares are priced once daily at the close of trading, based on the fund's Net Asset Value (NAV). Transactions are processed at that NAV.

Mutual funds offer diversification and professional management, but they can carry higher expenses than ETFs, such as advisory fees and sales loads (12b-1 fees). They are also less tax-efficient, as the fund must regularly sell underlying assets to satisfy redemptions, distributing realized capital gains to shareholders annually.

Quick Facts

Pricing SchedulePriced once daily at market close (NAV)

Major Regulating ActInvestment Company Act of 1940

Marketing FeesMay assess 12b-1 marketing and distribution fees

Transaction PartnerBought/sold directly with the fund, not on exchange

PRACTICAL EXAMPLE

An investor places $10,000 into a growth stock mutual fund. The transaction is processed at 4 p.m. at the fund's NAV of $50 per share, securing 200 shares. The fund manager invests the capital across 150 companies to achieve capital appreciation.

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RELATED TERMS

Learn More Key Concepts

StockA financial security representing a fractional share of ownership in a corporation, conveying voting rights and claims on assets.

BondA debt security representing a loan made by an investor to a borrower, typically a corporation or government agency.

ETFAn investment fund trading on stock exchanges, holding assets like stocks or bonds, and tracking specific indexes.

Index FundA mutual fund or ETF designed to track the performance of a specific market index, offering passive diversification at low cost.

PortfolioA collection of financial investments, such as stocks, bonds, cash equivalents, and alternative assets, held by an investor.

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