Mutual Fund
A pooled investment vehicle managed by a professional that collects money from many investors to purchase a diversified portfolio of stocks, bonds, or other securities.
A mutual fund pools capital from thousands of investors to create a large, professionally managed portfolio. Each investor owns shares of the fund proportional to their investment, and the fund's net asset value (NAV) is calculated once daily after the market closes.
Types of Mutual Funds
- Actively managed — A portfolio manager selects investments, aiming to outperform a benchmark. These carry higher expense ratios.
- Index funds — Passively track a market index with minimal trading and lower fees.
- Target-date funds — Automatically adjust allocation from aggressive to conservative as a target retirement date approaches.
Unlike ETFs, mutual funds are priced only once per day and may have minimum investment requirements. They can also distribute taxable capital gains to shareholders at year-end. When choosing between a mutual fund and an ETF, consider costs, tax implications, and whether you need intra-day trading flexibility.