What is a mutual fund and how does it work?

A mutual fund is an investment vehicle that pools money from many investors to purchase a diversified portfolio of stocks, bonds, or other securities. Managed by professional fund managers, mutual funds allow individual investors to gain exposure to a wide range of investments, which they may not be able to afford on their own. Investors in a mutual fund own shares of the fund, and their returns depend on the performance of the assets in the portfolio. Mutual funds offer the advantage of diversification and professional management, but they also come with management fees and the risk of market fluctuations.