mutual fund

noun
Updated on: 26 Jul 2017

Definition of mutual fund

:an open-end investment company that invests money of its shareholders in a usually diversified group of securities of other corporations

Examples of mutual fund in a Sentence

  1. She invested her money in a mutual fund.

First Known Use of mutual fund

1932


Financial Definition of MUTUAL FUND

mutual fund

What It Is

Mutual funds are open-ended investment companies that pool investors' money into a fund operated by a portfolio manager. This manager then turns around and invests this large pool of shareholder money in a portfolio of various assets, or combinations of assets.

How It Works

Mutual funds may include investments in stocks, bonds, options, futures, currencies, treasuries and money market securities. Depending on the stated objective of the fund, each will vary in regard to content and risk.

Funds issue and redeem shares on demand at the fund's NAV, or net asset value. Mutual fund management fees typically range between 0.5% and 2% of assets per year, but 12b-1 fees, exchange fees and other administrative charges also apply.

There are several different types of mutual funds you should be aware of:

Additionally, a given mutual fund will issue different classes of its shares to investors.  The most common variations of share classes for load mutual funds are front-load A shares, back-end load B shares, and level-load C shares.

Why It Matters

It is an important for an investor to consider mutual funds among their investment opportunities.  Just as with any investment, the pros and cons must be compared.

Advantages of investing in mutual funds include:

Professional management
Investment diversification
Liquidity
Explicit investment goals
Simple reinvestment programs

Disadvantages:

Many funds charge hefty fees, leading to lower overall returns.
Over time, statistics have shown that most actively managed funds tend to underperform their benchmark averages.
Mutual funds cannot be bought or sold during regular trading hours, but instead are priced just once per day.


MUTUAL FUND Defined for English Language Learners

mutual fund

noun

Definition of mutual fund for English Language Learners

  • : a type of investment in which the money of many people is used to buy stock from many different companies


Law Dictionary

mutual fund

legal Definition of mutual fund

see fund 2

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