Definition
Mutual funds pool money from many investors to buy a diversified portfolio of securities. They are priced once daily at NAV. Actively managed funds attempt to outperform benchmarks through security selection and market timing. Index funds passively replicate benchmarks. Mutual funds provide professional management and diversification but charge ongoing fees (expense ratios) and may generate taxable capital gains distributions.
lightbulb Example
An investor places a $10,000 order for a large-cap growth mutual fund at 2:00 PM. The order executes at the 4:00 PM NAV price of $45.23, purchasing 221.15 shares. The fund charges a 0.65% annual expense ratio.
verified_user Key Points
- Priced once daily at NAV
- Active or passive management styles
- Minimum investments often $1,000-$3,000
- Capital gains distributions create tax events