A mutual fund is an open-end investment company or fund. An open-end fund is one of three basic types of investment companies. The other two types of investment companies are closed-end funds and unit investment trusts (UITs). Exchange-traded funds (ETFs) are generally also structured as open-end funds, but can be structured as UITs as well.
A mutual fund continuously pools money from many investors and invests the money in stocks, bonds, money market instruments, other securities, or even cash.
Here are some of the traditional and distinguishing characteristics of mutual funds:
There are many varieties of mutual funds, including, stock funds, bond funds, and money market funds. Some mutual funds are index funds and other are actively managed. Each may have a different investment objective and strategy and a different investment portfolio. Different mutual funds may also be subject to different risks, volatility, and fees and expenses. Fees reduce returns on fund investments and are an important factor that investors should consider when buying mutual fund shares.
For more information on mutual funds, please read our brochure on Mutual Funds and ETFs: A Guide for Investors. In addition, you should carefully read all of a fund’s available information, including its prospectus and most recent shareholder report before purchasing mutual fund shares.
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