A mutual fund is an investment company designed to pool the funds of smaller investors and place them under professional management. A mutual fund allows small investors to diversify their portfolios. When a mutual fund is formed, it issues a prospectus detailing its intended investment strategy, and it is not permitted to deviate from that strategy without public disclosure. A mutual fund prospectus also details the fees investors will be charged, which can be substantial. In the US, a mutual fund is regulated by the SEC. A mutual fund may invest in stocks, bonds, options, futures, currencies, and/or commodities. Although any specific mutual fund is required to follow a specific investing strategy, the range of strategies available is wide. A mutual fund such as an index fund may attempt to replicate market or sector index. A mutual fund may specialize in large-cap, small-cap or even micro-cap stocks. Investors seeking regular income can invest in a mutual fund that specialize in government bonds or, for the more aggressive, corporate debt.

Last updated on May 14, 2009 by Jack Parsons