Mutual Funds

What Is a Mutual Fund?

By definition, a mutual fund is an investment that lets you combine your money with several others, giving you access to a broader selection of securities than one person could on their own. With that pooled money, professional mutual fund managers buy a wide array of investments. Each mutual fund has specific investment goals that can range from current income to long-term growth.

Depending on the investing goal, the managers may purchase investments from one of the following broad asset categories:

• Stocks: ownership shares in publicly held companies
• Bonds: interest-bearing certificates issued by governments and corporations
• Money Market Securities: short-term instruments, such as U.S. Treasury bills and certificates of deposit, that mature in less than one year
• Alternatives: assets outside of traditional stocks, bonds and money markets that use advanced techniques.

Mutual funds in these categories can be broken down further to target specific investment types, such as dividend-paying stocks, international investments or long-term bonds.

Benefits of Mutual Funds

There are several advantages to mutual fund investing, including professional management, investment diversification and convenience.

• Professional management. You can rely on the expertise of professional portfolio managers to select investments for the mutual fund. This can be especially valuable during times of volatile prices and market uncertainty.
• Investment diversification. A mutual fund allows you to spread your money among many different securities. Whether you invest in one mutual fund or several, keep in mind that your portfolio should include a variety of investments to lower your overall investment risk.
• Convenience. It's easy to buy and sell mutual fund shares, exchange shares between funds and reinvest your distributions of dividends and capital gains.

When selecting or evaluating a mutual fund, it's important to understand the mutual funds objectives and investment style. Additionally, you should consider your tolerance for risk and how much time you have to invest. These factors can help you determine if the fund is right for you and your situation.