A mutual fund is a type of investment vehicle which is made up of a pool of funds collected from many investors. The funds collected are then used to invest in securities such as stocks (shares), bonds, money market instruments and similar assets. Mutual funds are administered by qualified fund managers, who invest the fund’s capital in an attempt to produce capital gains and income for the fund’s investors. A mutual fund’s portfolio is structured and maintained to match the investment objectives stated in its prospectus.
One of the main advantages of mutual funds is that they give small investors access to professionally managed, diversified portfolios of equities, bonds and other securities, which would be quite difficult (if not impossible) to create with a small amount of capital. Each shareholder participates proportionally in the gain or loss of the fund; the gain or loss is directly proportionate to the amount of shares held by the investor. Mutual fund shares are issued and can typically be purchased or redeemed as needed at the fund’s current net asset value (NAV)
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