Mutual Funds

A mutual fund creates a portfolio of various assets such as stocks, bonds, cash, and other securities. Mutual funds are divided into several different categories representing the kinds of securities they invest in, their investment objectives, and the type of returns they seek. Common fund categories include stocks, bonds, indexes, balanced, money markets, income, and international.

Find out which type is best for your goals. Talk with an advisor.

While mutual funds and Exchange Traded Funds (ETFs) both pool investor money into a collection of securities that can help diversify their portfolio without having to buy and manage individual assets, there are a few key differences to consider.

How they trade: ETFs trade like stocks and are bought and sold on a stock exchange at a price that can change throughout the day. This means that the price at which you buy an ETF will likely differ from the prices paid by other investors due to market fluctuation. Most mutual funds are traded once at the end of each trading day with all investors on the same day receiving the same price.

Tax consequences: ETFs do not pass through capital gains so you'll only realize gains when you sell shares, whereas mutual funds pass the gains on to you in the year the fund realizes them for as long as you own shares.

Management style: Generally, most mutual funds are actively managed meaning the fund manager uses their experience to buy and sell securities to pursue better-than-market returns, which can translate to higher costs for investors. ETFs on the other hand, are mostly passively managed to mirror a benchmark or index like the S&P 500.

Investment minimums: ETFs don't have minimum investment requirements, where most mutual funds often have a minimum investment of at least a $1,000.

Want to know more? Get our guide on how mutual funds and ETFs differ. You can also talk to an advisor about which investments are best for your portfolio.

Mutual funds aim to generate positive returns by investing in promising stock, bond, or other asset opportunities that lead to a balanced and diversified portfolio. As the value of these investments grow (they could also go down) over time, so will the value of your mutual fund shares. Depending on the investment strategy of the fund, the growth can come in the form of capital gains, dividend income, or interest income. Experienced fund managers actively monitor and adjust the fund's holdings, to help make sure your money is optimally invested for long-term growth.

To learn more about mutual funds, take a look at our guide.

There is no single expectation of performance across all mutual funds (some 10,000 in the U.S. alone). With so many types and categories of funds investing in various asset classes such as stocks, bonds, and cash, looking at a particular fund's long-term annualized performance compared to its benchmark can give you an idea of its anticipated performance. However, there are always market uncertainties with any investment, so there are no guarantees that a fund's past performance will be indicative of future results.

To learn more about how a mutual fund can fit into your portfolio, talk with a financial advisor.

Mutual funds can be a good investment option for people looking for convenience and simplicity. You can start small and gradually increase your investment amount over time. Mutual funds also offer easy access to a wide range of assets like stocks, bonds, and commodities, without the need for extensive research or monitoring. This diversification can help manage risks and potentially generate higher returns over the haul. However, it's important to carefully consider factors such as fees, performance history, investment objectives, and risk tolerance before investing in any mutual fund.

See if a mutual fund is right for your portfolio, talk with a financial advisor.

Unlike typical investments that can be bought and sold throughout trading hours at the current market price, mutual funds are traded and priced after the trading day ends. The daily price (net asset value or NAV) is set based on the value of the securities held in the fund and the shares outstanding. Your investment then changes in value along with the NAV. As an investor in a mutual fund, you won't own the securities in which the fund invests, you'll only own shares in the fund itself.

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Yes. Mutual funds charge investors for managing their investments. These fees pay the fund manager and cover expenses like research, analysis, trading, and administrative costs. Fees fall into two buckets: annual fund operating expenses and shareholder fees. Typically, an operating fee is a percentage of the fund's assets under management, while a shareholder fee is typically a set dollar amount. While management fees reduce overall returns, they're essential for covering the costs of research, administration, and portfolio management, allowing the fund to continue operating and trying to generate positive returns for investors.

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