Glossary
Mutual Fund
A mutual fund is a pooled investment that gathers money from many investors and buys a portfolio of stocks, bonds, or other assets, with each investor owning shares of the whole.
Shares are bought and sold once daily at the fund's net asset value, calculated after markets close. Funds may be actively managed (managers picking securities) or passive (tracking an index), and costs vary enormously — from a few basis points to well over 1% annually, sometimes plus sales loads.
Why it matters in practice
Mutual funds made diversification accessible to ordinary savers and remain the chassis of most 401(k) menus. The practical work is reading the label: strategy, expense ratio, and any load, all stated in the prospectus. In taxable accounts, actively traded mutual funds can also distribute taxable capital gains even to investors who sold nothing — a quirk ETFs largely avoid.
Related terms: ETF (Exchange-Traded Fund) · Index Fund · Expense Ratio · Load Fund · Prospectus