What is a mutual fund? A mutual fund is a collection of funds from a variable amount of investors (typically more than one up to a few thousand)
that is then pooled together to create an asset that is then invested in one or a wide variety of markets. Mutual fund managers typically have a benchmark that defines the type of investments made on the investors behalf.
What are the advantages of mutual funds over other types of investments? Diversification. Because the mutual fund manager will typically spread the investment over a wide range of stocks etc, the customer gains a wide range of investments from the get go. Another advantage is the added professional management available when an investment in a mutual fund is made. All the experience your fund manager has will be used to oversee the mutual funds performance. Which makes this suitable for those without the time to understand the strategies involved in such investments.
Sounds good so far right? But like everything in life, there are some disadvantages to mutual funds. Over-diversification. Some managers tend to invest in areas that are too alike, thereby limiting the inherent protective traits of diversification. Recall that a portflio manager oversees the mutual fund. Well they don't do it for free as there are fees involved that must be paid regardless of the mutual funds performance. The following is usually true as well - The better the mutual fund manager, the higher the commisions earned by the manager..
