Understanding What is a Mutual Fund According to The Mutual Fund Education Alliance
More than 80 million people, or one out of every two households in America, invest in mutual funds. Currently, over $6 trillion is invested in mutual funds. While funds have been around since the 1920’s, their popularity over the past 25 years has soared. The reasons:
- mutual funds make it easy and less costly for investors to satisfy their need for capital growth, income and/or income preservation
- mutual funds bring diversification and professional money management to the individual investor
A mutual fund is a company that pools the money of many investors — its shareholders — to invest in a variety of different securities. Investments may be in stocks, bonds, money market securities or some combination of these. Those securities are professionally managed on behalf of the shareholders, and each investor holds a pro rata share of the portfolio — entitled to any profits when the securities are sold, but subject to any losses in value as well.
For the individual investor, mutual funds provide the benefit of having someone else manage your investments, take care of recordkeeping for your account, and diversify your dollars over many different securities that may not be available or affordable to you otherwise. Today, minimum investment requirements on many funds are low enough that even the smallest investor can get started in mutual funds.
A mutual fund’s assets are invested in many different securities. Because there are many different types of mutual funds with different objectives and levels of growth potential, a portfolio of different types of mutual funds offers diversification.