A mutual fund is an investment vehicle that pools money from the public and provides individual investors access to professional managed portfolios of equities, bonds and other security types. The value and performance of a mutual fund is thus based upon the pro rata performance of the various securities that comprise the fund.
Individual investors tend to prefer mutual funds as investment vehicles because of the diversification that a fund can provide. Whereas more experienced investors can construct and actively manage their own investment portfolios, many individuals are drawn to mutual funds with investment strategies and objectives that align with their preferred risk categorization. There is no need for the individual holder of a mutual fund to be actively concerned with the management of the fund, as a professional money manager is charged with achieving a rate of return commensurate with the fund’s prospectus.
*Diversification does not guarantee returns and does not protect against loss.