Mutual Fund
A mutual fund is a professionally managed investment pool that collects money from many investors and buys stocks, bonds or other securities on their behalf.
When you invest in a mutual fund, you buy shares of the fund rather than the underlying securities directly. The fund's manager decides what to buy and sell according to the fund's stated objective, such as growth, income or tracking an index.
Unlike ETFs, mutual fund shares do not trade on an exchange during the day. Orders are filled once per day at the fund's net asset value (NAV), calculated after the market closes. Many funds require a minimum initial investment, and some charge sales loads or 12b-1 marketing fees in addition to the annual expense ratio.
Mutual funds are common in 401(k) plans and IRAs. They give small investors access to diversification and professional management, but costs and taxes matter: an actively managed fund must beat its benchmark by more than its fees to add value, and capital gains distributions can create a tax bill even if you did not sell any shares.
Example: a $1,000 investment in a fund with a NAV of $20 buys 50 fund shares.