If you tried on your own to develop a fully diversified account of stocks, bonds, treasuries and other securities, you'd probably find yourself a whole lot poorer. You'd have to pay custodial and clearing fees, and sort out complex tax issues. The service you buy is convenient and relatively inexpensive access to the capital markets. When people refer to mutual funds, they usually mean open-end funds which can issue an unlimited number of shares. The more money investors put into the fund, the more shares it issues.
Funds use shareholder money to buy assets.
The stocks or bonds a fund holds comprise its portfolio , and the financial professional who decides what to buy and sell is the portfolio manager . Every day the fund's accountants calculate the value of each share. This is done by totaling up the value of all assets in the fund's portfolio and dividing that figure by the number of fund shares outstanding. This small percentage, however, is enough to be profitable for the fund company, since so many people are investing so much money. Bond funds hold only bonds.