Mutual funds are investment vehicles that pool money from various investors to collectively invest in a diversified portfolio of stocks, bonds, or other securities. These funds are managed by professional fund managers who make investment decisions on behalf of the investors. Investors buy shares of the mutual fund, and the value of these shares, known as Net Asset Value (NAV), fluctuates based on the performance of the underlying securities. Mutual funds provide a convenient and accessible way for individual investors to diversify their portfolios without having to directly manage and monitor multiple securities. They come in various types, including equity funds, bond funds, money market funds, and hybrid funds, catering to different risk appetites and investment goals.
One key advantage of mutual funds is diversification, spreading the investment across various assets to reduce risk. Additionally, they offer liquidity, as investors can typically buy or sell shares on any business day. Mutual funds provide an avenue for both novice and experienced investors to participate in the financial markets with the guidance of professional fund managers. However, it's important for investors to carefully consider factors such as fees, historical performance, and the fund's investment objectives before choosing a mutual fund that aligns with their financial goals and risk tolerance.