A mutual fund is a company that pools money from many investors and invests the money in securities such as stocks, bonds, and short-term debt. The combined holdings of the mutual fund are known as its portfolio. Investors buy shares in mutual funds. Each share represents an investor’s part ownership in the fund and the income it generates.

Why do people buy mutual funds?

Mutual funds are a popular choice among investors because they generally offer the following features:

1. Professional Management. The fund managers do the research for you. They select the securities and monitor the performance.
2. Diversification or “Don’t put all your eggs in one basket.” Mutual funds typically invest in a range of companies and industries. This helps to lower your risk if one company fails.
3. Affordability. Most mutual funds set a relatively low dollar amount for initial investment and subsequent purchases.
4. Liquidity. Mutual fund investors can easily redeem their shares at any time, for the current net asset value (NAV) plus any redemption fees.