HomeGlossaryMutual Fund

Mutual Fund

A mutual fund is an investment company that pools money from numerous investors to buy assets and securities. These funds are managed by expert money managers, who develop investment strategies and invest the pooled money to bring profits to its investors. 

A mutual fund’s price, known as its net asset value (NAV), is defined by the combined value of the securities within the fund’s portfolio, divided by the number of its shares outstanding. The price changes of a mutual fund depend on the value of its underlying securities at the end of each trading day. 

It is important to note that mutual fund investors do not directly hold the securities within the fund’s portfolio but rather just the shares in the fund itself.

Decisions on which securities the fund will buy and sell are made by one or multiple portfolio managers, whose main objective is to detect lucrative investment opportunities that would help the fund outdo its market benchmark such as the S&P 500, Nasdaq, or others. 

That’s why one of the best ways to measure a mutual fund’s performance is to compare it with the performance of its benchmark. 

While mutual funds are open and available to the public, hedge funds are only available to accredited investors. 

Go back to our full glossary.

Author: Mircea Vasiu Updated: July 18, 2022