Mutual funds are collections of stocks, bonds, and other financial assets that are owned by a group of investors and managed by a professional investment company. As an investor in a mutual fund, you own a share of the fund that is equal to the amount of your investment divided by the total value of the fund.

Mutual funds provide many important benefits to investors; these benefits particularly apply to investors who are just beginning to invest. Since a mutual fund can include hundreds of different securities, the performance of the fund is not dependent on any single security: the risk is spread among the various securities. In most cases, a portfolio manager is assigned to monitor the performance of securities in the fund. Well-chosen mutual funds can help you achieve your financial goals. The purpose of this section is to explain the advantages, disadvantages, and costs of investing in mutual funds.

When you have completed this section, you should be able to do the following:

1. Explain the advantages and disadvantages of mutual funds.
2. Describe the different types of mutual funds.
3. Calculate mutual fund returns.
4. Understand how to buy a mutual fund.
5. Explain the costs of investing in mutual funds.