Mutual Fund

A mutual fund is a financial vehicle that allows investors to pool their funds together to achieve a predetermined investment objective. Typically, a mutual fund will have a fund manager, who is responsible for aligning the holdings of the fund with the stated investment objective.

When you invest in a mutual fund, you are buying shares of the mutual fund and therefore become a shareholder of the fund. Mutual funds are a good investment vehicle because by pooling money together investors can purchase stocks or bonds at lower transaction costs than if they tried to perform the transaction on their own.  A second advantage of a mutual fund is that it allows the investor to enjoy instant diversification, thereby reducing the risk of the investment.