Mutual Fund

An enterprise that pools funds from customers and invests them in a portfolio of securities, theoretically in keeping with the goals and principals stated in its prospectus.

Mutual funds are increasingly the vehicle of choice for lay investors seeking a return on their savings. One reason is the staggering array of choices offered by the mutual fund industry. There are funds of every conceivable variety and risk level, but they fall into a few broad categories. Stock funds might be considered value or growth; the former are more conservative than the latter. Looked at a different way, stock funds also specialize in small, medium or large size firms, or firms in a particular sector, such as computers or health care or financial services. There are also many kinds of bond funds, as well as funds that invest in a mix of stocks and bonds. Most funds are professionally managed, but some index funds are run more or less by computer, since they seek only to match a market index, such as the Standard & Poor's 500. Finally, there are money-market funds, which many people don't even think of as mutual funds.

In choosing a mutual fund, consider the fund's track record, the tenure of its manager, and the level of fees charged. There is no evidence that funds charging a hefty load, or investment fee, outperform those that don't, so it's hard to justify load funds. Most funds are ""open end"" funds, but some are ""closed end,"" meaning they trade like stocks from investor to investor.



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