Definition
A fund that pools money from many investors to buy a mix of stocks, bonds or other assets, managed by a professional firm.
What it means
A mutual fund collects money from many people and invests it according to a stated objective, such as large U.S. companies, bonds or a mix. Each share represents part of the fund's holdings, and shares are bought and sold at the net asset value (NAV) calculated once each trading day after the market closes. Funds may be actively managed, where managers pick investments, or passively managed index funds. Costs include the expense ratio and, for some funds, sales charges called loads or other fees, all listed in the prospectus. Mutual funds are regulated by the SEC, but they are not FDIC-insured and can lose value. Funds pass capital gains and dividends to shareholders, which can be taxable in a regular account even if reinvested.
Example
A $10,000 investment in a fund with a 0.50% expense ratio pays about $50 a year in fund expenses; a fund charging 1.00% costs about $100 a year.
Illustrative numbers only. Your situation will differ.