A mutual fund is a pool of money that is collected from individual investors, companies, and other organizations. Through a mutual fund people are able to own higher priced stocks that are usually only available for purchase in large amounts. For example, a company is selling shares at $5 per share and you want to invest $50 in the company, but the company only sells shares in quantities of one thousand shares. This would cost $5,000 which you do not want to spend. In this case a mutual fund would pool together $50 from one hundred people to purchase the stock of the given company.
Types of Mutual Funds
Currently there are three different types of mutual funds on the market: equity funds, debt funds, and balance funds. An equity fund is one which invests mainly in stocks. A debt fund is one where the assets held are in the things such as short-term and long-term bonds. A balance fund is a mutual fund that divides its money between common stock, preferred stock, and high yield bonds.
When wanting to invest in a mutual fund, one should do their research and study the funds that they are considering to buy.