What is a Mutual Fund?

What is a mutual fund?

A mutual fund is a collection of stocks, bonds, and other securities owned by a group of investors and managed by a professional investment advisor. The advisor, often known as a “mutual fund manager” collects money and invests that pool of money in various stocks, bonds and other assets. An asset is anything that can be sold for cash. Some mutual funds are riskier than others depending on the investments they have chosen. The mutual fund manager has a team of analysts to help determine which assets to include in the mutual fund. Mutual funds often invest in 100 or more stocks and bonds (also referred to as securities).

There different mutual funds for different investment strategies and risk tolerances --from conservative to speculative –- and funds that address environmental and social issues. For example, a “green” portfolio, is composed of stocks from companies that consider the environmental impact of their business. Every day the fund's manager and analysts evaluate the fund's overall market performance, the effect of economic news on the fund’s assets, and which ones to hold, which to sell, and which to buy.

The mutual fund manager must follow a clearly stated set of objectives when deciding what to buy or sell. The objectives can be found in the mutual fund’s prospectus (a detailed description of the mutual fund and what it is invested in).

Investing in mutual funds can be a highly successful strategy because they help individual investors diversify their portfolios. This lesson will teach you how to find and research various mutual funds. After finding two funds of your choice, you will review the funds' profiles and analyze their portfolios.

Sources for Information on Mutual Funds

Yahoo! Finance https://finance.yahoo.com/mutualfunds

Morningstar https://www.morningstar.com/funds

Top Holdings section of the SMG website

To learn more about mutual funds, try the activities below: