Mutual Fund

A mutual fund is defined as a professionally managed investment fund, combining money from multiple investors to purchase a basket of securities.

These can include stocks, bonds, currencies, etc. Mutual funds are extremely popular in the United States amongst both retail investors and corporates.

They differ notably from hedge funds, which cannot be sold to the public and are typically reserved for institutional investors and high net-worth traders.

These funds are most utilized in the US and Canada. Europe relies on similar funds, known as investment companies with variable capital.

Why Invest in Mutual Funds?

Mutual funds adopt a portfolio-style approach to investing, making them popular amongst traders.

Their popularity is attributed to diversified strategies, liquidity, professional management, and overall economies of scale given the access of pooled funds.

By extension, these advantages come at a cost, since mutual funds charge fees and expenses for their curation and management.

There are several attributes that differentiate mutual funds. This includes the composition of funds and reliance on certain instruments skewing them as high or low-risk.

Additionally, mutual funds can be composed of assets in specific proportions or weighted more heavily towards certain instruments such as fixed income, equities, or bonds.

Mutual funds can also be referred to as index fund, which operate as more passively managed funds, tethered to the performance of a specific index.

Some of the best examples of this include funds mirroring the S&P 500 index or other indices in the US stock market.

These funds are also popular components of retirement accounts in the US as large fund managers are better able to appropriate investor funds in diversified strategies.