Mutual Fund
A pooled investment vehicle that collects money from many investors to purchase a diversified portfolio of securities.
What is Mutual Fund?
A mutual fund is an investment company that pools money from many investors to purchase a diversified portfolio of stocks, bonds, or other securities. Investors buy shares of the fund, and each share represents a proportional interest in the fund's holdings. Mutual funds are priced once per day at net asset value (NAV) after market close — unlike ETFs, which trade continuously on exchanges. They are managed either actively (fund managers select securities) or passively (tracking an index). Key costs include the expense ratio (annual management fee), load fees (sales commissions), and sometimes redemption fees. Over $25 trillion is invested in US mutual funds, making them the most common retirement savings vehicle alongside 401(k)s.
Example
An investor contributes $10,000 to Vanguard's Total Stock Market Index Fund (VTSAX), a mutual fund with a 0.04% expense ratio that tracks the CRSP US Total Market Index. The fund holds over 4,000 US stocks. Each day after 4pm EST, the fund calculates NAV based on closing prices. The investor's $10,000 buys a proportional share of all 4,000+ stocks in one transaction.
Source: SEC — Mutual Funds