A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities. These investors may be retail or institutional in nature.
Mutual funds have advantages and disadvantages compared to direct investing in individual securities. The primary advantages of mutual funds are that they provide economies of scale, a higher level of diversification, they provide liquidity, and they are managed by professional investors. On the negative side, investors in a mutual fund must pay various fees and expenses.
Primary structures of mutual funds include Open-end funds, Unit investment trusts, and Close-end funds. Exchange-traded funds (ETFs) are open-end funds or Unit investment trusts that trade on an exchange. Mutual funds are also classified by their principal investments as money market funds, bond or fixed income funds, stock or equity funds and hybrid funds. Funds may also be categorized as index funds, which are passively managed funds that match the performance of an index.
Mutual funds may include investments in stocks, bonds, options, futures, currencies, and money market securities. Depending on the stated objective of the fund, each fund will vary in regard to content and risk.
Mutual Funds issue and redeem shares on demand at the funds NAV, or net asset value.