What are mutual funds?

A mutual fund is a type of investment vehicle that pools money from multiple investors and uses that money to buy a diversified portfolio of stocks, bonds, or other securities. Mutual funds are managed by professional asset management companies, which invest the pooled money on behalf of the investors.

Each mutual fund has a specific investment objective, such as to generate income, to grow capital, or to provide a combination of income and capital growth. The value of a mutual fund's holdings is known as its net asset value (NAV). The NAV of a mutual fund is calculated by dividing the total value of all the securities in the fund's portfolio by the number of mutual fund units outstanding.

Mutual funds offer investors several benefits, such as professional management, diversification, liquidity, and the ability to invest small amounts of money. However, mutual funds also carry some risks, such as market risk, which is the risk that the value of the securities in the fund's portfolio will decline due to changes in market conditions. It is important to carefully consider the specific risks and objectives of a mutual fund before investing.