What is a Mutual Fund?

A mutual fund is a portfolio of securities that is owned by many investors, where each investor owns shares in the portfolio. The fund is operated by money managers, who invest funds with the target of increasing the return to investors, either from income or capital gains. The exact type of investment strategy in which the money managers engage is based on the investment objectives stated in the fund's prospectus. A mutual fund has the advantage of bringing professional investment advice to smaller investors, who would not otherwise have access to a diversified portfolio.

Net Asset Value in a Mutual Fund

Mutual fund shares are typically bought and sold at the fund's net asset value. Investors subsequently experience gains and losses as the net asset value changes. Net asset value is calculated as the aggregate amount of the securities in the portfolio, divided by the number of shares outstanding.

Mutual Fund Fees

The managers of a mutual fund may assess an advisory or management fee, which is assessed either when shares are bought or sold, which is called a front-end load or back-end load, respectively. When no advisory or management fee is charged, it is called a no-load fund.