Mutual Fund

A mutual fund collects money from many investors and uses it to buy a portfolio of securities—stocks, bonds, or a combination. Each investor owns shares of the fund, and the fund's portfolio is managed by a professional investment manager.

Unlike ETFs, mutual fund shares are not traded on a stock exchange throughout the day. Instead, investors buy and sell shares directly from the fund company at the end-of-day price, known as the net asset value (NAV). Many mutual funds have minimum investment requirements.

Mutual funds can be actively managed—where a manager selects securities aiming to outperform the market—or passively managed, such as index funds that simply track a benchmark. Actively managed funds generally charge higher fees. Research consistently shows that the majority of active managers fail to beat their benchmark index after costs over long periods.