Mutual Fund

Instead of buying individual shares or bonds, investors buy units or shares of the fund. Each unit represents a slice of the whole portfolio. If the portfolio rises in value, so does each unit.

Mutual funds give individual investors easy access to diversification and professional management, even with small amounts of money. A single fund might hold hundreds of different companies across many industries.

Funds have different objectives. Some aim for growth, others for income, and some for a balance. Active funds employ managers who choose investments to try to beat a benchmark. Index funds aim simply to track a market index at low cost.

Investors in traditional mutual funds buy and sell units directly with the fund, usually once a day at a price based on the value of the fund's holdings at the close of trading, called the net asset value.

Funds charge fees, often expressed as an annual percentage of assets, such as 0.2% or 1.5%. Over many years, the difference in fees can significantly affect returns, so comparing costs is important.