What Is a Mutual Fund?
Written by True Tamplin, BSc, CEPF®
Updated on June 21, 2021
Mutual Fund Definition
A mutual fund is an investment vehicle in which a pool of investors collectively put forward funds to an investment manager to make investments on their behalf.
They are regulated by the Securities Exchange Commission, or SEC.
When involved with a mutual fund, each investor benefits proportionally to the amount of money they invested.
Defining Mutual Funds in Simple Terms
Mutual funds can be a good opportunity for small or individual investors to benefit from a professionally managed investment portfolio.
Mutual funds usually invest in a large number of securities, and their performance is tracked as the change in the market cap of the fund, which itself is determined by the performance of the underlying investments.
Mutual Fund Example
As opposed to buying traditional stocks, buying shares of a mutual fund does not give investors voting rights in any company; instead the fund manager votes on their behalf.
However, since mutual funds generally incorporate hundreds of different securities, it does give investors the benefit of diversification of their portfolios.
The value of a share of mutual fund is called the net asset value per share, or the NAV.
The price is determined by taking the net value of all the securities in the fund and dividing by the outstanding shares.