Mutual fund

A mutual fund is a professionally managed investment product that sells shares to investors and pools the capital it raises to purchase investments.

A fund typically buys a diversified portfolio of stock, bonds, and money market securities, or a combination of stock and bonds, depending on the investment objectives of the fund. Mutual funds may also hold other investments, such as derivatives.

A fund that makes a continuous offering of its shares to the public and will buy any shares an investor wishes to redeem, or sell back, is known as an open-end fund. An open-end fund trades at net asset value (NAV).

The NAV is the value of the fund's portfolio plus money waiting to be invested, minus operating expenses, divided by the number of outstanding shares.

Load funds -- those that charge upfront or back-end sales fees -- are sold through brokers or financial advisers. No-load funds are sold directly to investors by the investment company offering the fund. These funds, which don't charge sales fees, may use 12b-1 fees to pass on the cost of providing shareholder services.

All mutual funds charge management fees, though at different rates, and they may also levy other fees and charges, which are reported as the fund's expense ratio. These costs plus the trading costs, which aren't included in the expense ratio, reduce the return you realize from investing in the fund.

A fund that sells its shares to the public only until sales reach a predetermined level is known as a closed-end fund. The shares of a closed-end fund trade in the marketplace the way common stock does.