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  • Writer's picture Leslie Lewis (she/her)

What is a mutual fund?

Instead of investing in individual stocks, another investment you can choose is called a MUTUAL FUND, which is an actively managed 'basket' or grouping of stocks, (or bonds or a mix of different types of securities) and the fund usually has a specific focus. Mutual funds have a manager who chooses what the mutual fund invests in, and for that service, the manager takes a fee, and that plus the costs of running the fund, is called the 'expense ratio.'


Mutual funds were first created as a type of investment in 1904, and have evolved into a huge industry. There are more mutual funds than publicly traded stocks now, in the US!


Here's the definition according to Investor.gov, (which is really a great resource for anyone getting started in investing).


A mutual fund is a company that pools money from many investors and invests the money in securities such as stocks, bonds, and short-term debt. The combined holdings of the mutual fund are known as its portfolio. Investors buy shares in mutual funds. Each share represents an investor’s part ownership in the fund and the income it generates.


Photo: Mint


Mutual funds are 'liquid' which means that you can sell your shares easily. The price updates only once a day, though, unlike stocks, whose price fluctuates while the market is open. In addition to the 'expense ratio' there can also be sales fees, called the 'load.' If you've ever heard of a 'no-load fund' it means that there isn't a sales fee tacked on, but that doesn't mean that there aren't any fees. It can feel confusing!


Have you invested in a mutual fund? Do you have any other question about them? Let me know in the comments! And as always, thanks for reading this.



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