Investors Contribute
Investors contribute money to the mutual fund according to its investment structure and rules.
INVESTING • MUTUAL FUNDS
How Mutual Funds Work
Understand how mutual funds pool investor money, build portfolios, manage investments and provide access to different asset classes. Learn about fund types, potential benefits, risks and costs before choosing an investment.
Fund Basics
Types of Funds
Risks & Costs
MUTUAL
FUND
POOLED INVESTING
Stocks
Bonds
Assets
Markets
MUTUAL FUND BASICS
What is a mutual fund?
A mutual fund is an investment vehicle that pools money from multiple investors and uses that money to purchase a portfolio of investments according to a defined objective.
Depending on the fund, that portfolio may include stocks, bonds, money market instruments or other eligible investments. Instead of selecting every security individually, investors can gain exposure to a portfolio through a single mutual fund.
The value of a mutual fund can change as the market value of its underlying investments changes. Understanding what a fund owns, how it is managed and what it costs can help investors determine whether it fits their goals and risk tolerance.
A pooled investment structure
Money from multiple investors is combined and managed according to the fund's stated investment strategy.
HOW MUTUAL FUNDS WORK
From investor contributions to a managed portfolio.
A mutual fund follows a structured process that turns investor contributions into a professionally managed portfolio.
Money Is Pooled
Contributions from different investors form a pool that the fund uses to purchase investments.
Portfolio Is Managed
The portfolio is managed according to the fund's objective, strategy and applicable rules.
Fund Value Changes
The value of a fund changes as the market value of its underlying investments changes.
UNDERSTANDING THE MARKET
See how pooled investing can support portfolio diversification.
Mutual funds can bring different investments together within one portfolio. The strategy, holdings and risk characteristics depend on the particular fund.
Portfolio approach
Different asset classes
Defined investment objectives
TYPES OF MUTUAL FUNDS
Different funds are designed for different objectives.
Mutual funds can differ in their underlying assets, investment approach, risk characteristics and intended time horizon.
Stock Funds
Invest primarily in stocks and may focus on broad markets, company sizes, sectors or investment styles.
Bond Funds
Invest in portfolios of bonds and other fixed-income securities according to the fund's strategy.
Money Market Funds
Generally invest in short-term instruments and may be used for short-term cash management.
International Funds
Provide exposure to companies or securities in markets outside the investor's domestic market.
Balanced Funds
Combine different asset classes, such as stocks and bonds, within one investment strategy.
Specialized Funds
Focus on particular sectors, themes, investment characteristics or defined areas of the market.
POTENTIAL BENEFITS
Why investors consider mutual funds.
Mutual funds have several structural features that may make them useful within different investment strategies.
Diversification
A mutual fund can hold multiple securities, providing broader exposure than owning a single security.
Professional Management
Fund managers and investment teams manage portfolios according to the fund's stated strategy.
Convenience
Investors can gain access to a portfolio through a single fund instead of selecting every security individually.
Investment Choice
Investors can choose among funds with different objectives, asset classes, strategies and risk characteristics.
MUTUAL FUND RISKS
Mutual funds can diversify investments, but they still carry investment risk.
The level and type of risk depend on the securities held by the fund, its strategy, market conditions and other factors.
Market Risk
The value of a mutual fund can fall when the underlying investments decline in value.
Interest Rate Risk
Bond-oriented funds may be affected by changes in interest rates and broader fixed-income market conditions.
Credit Risk
Certain bond funds can be exposed to the possibility that an issuer may experience financial difficulty.
Concentration Risk
Funds focused on a particular sector, market or investment theme can have more concentrated exposure.
FUND
COST
MUTUAL FUND COSTS
Understand the costs before choosing a fund.
Mutual funds can have expenses associated with managing and operating the fund. The exact costs vary depending on the fund and its structure.
Investors may want to review the expense ratio, transaction-related costs, sales charges where applicable and other relevant expenses before making an investment decision.
Look beyond performance.
Consider costs alongside the fund's objective, holdings, risk,
strategy and suitability for your portfolio.
CHOOSING A MUTUAL FUND
What to check before investing.
Past performance is only one part of evaluating a mutual fund. Understanding its structure and role in your portfolio is also important.
01
Investment Objective
Understand what the fund is designed to achieve.
02
Underlying Holdings
Review the securities, sectors, regions and asset classes involved.
03
Risk Level
Consider how the fund may behave under different market conditions.
04
Costs
Review the fund's expenses and other applicable charges.
05
Time Horizon
Consider whether the fund's characteristics fit your investment timeframe.
06
Portfolio Fit
Think about how the fund complements your existing investments.
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FREQUENTLY ASKED QUESTIONS
Questions investors often ask about mutual funds.
A mutual fund pools money from multiple investors and uses that money to build and manage a portfolio of investments according to a defined objective.
Investors contribute money to a fund, and the fund uses the pooled capital to purchase investments according to its stated strategy. The value of the investment changes as the underlying portfolio changes in value.
Many mutual funds hold multiple securities and can therefore provide diversification. However, diversification varies by fund, and narrowly focused funds may have greater concentration.
Yes. Mutual fund investments can lose value when the underlying securities decline. The level of risk depends on the fund's investments and strategy.
Mutual fund expenses can include operating and management costs associated with running the fund. Exact costs vary between funds and should be reviewed before investing.
Investors can compare a fund's objective, holdings, costs, risk, investment strategy, time horizon and role within their broader portfolio rather than focusing only on past returns.
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