ETFs & Funds · Investing Glossary
What Is Mutual Fund?
A pooled investment vehicle managed by a professional fund manager.
The Full Definition
A mutual fund pools money from many investors to buy a diversified portfolio of stocks, bonds, or other assets managed by a professional fund manager. Unlike ETFs, mutual funds are priced once per day after market close and cannot be traded intraday. Most mutual funds are actively managed — a manager tries to beat the market — which results in higher fees and, on average, lower returns than passive index funds over long periods.
Real-World Example
An actively managed large-cap growth mutual fund charging 1.2% expense ratio must outperform a comparable index fund charging 0.03% by more than 1.17% every year just to break even for investors — which most fail to do consistently.
Related Terms
ETF (Exchange-Traded Fund)A basket of securities that trades on an exchange like a single stock.Index FundA fund that tracks a market index like the S&P 500, owning all its components.Expense RatioThe annual fee a fund charges, expressed as a percentage of assets.Active ManagementA fund management approach where a manager actively picks investments trying to beat the market.