Mutual funds can make money for you in two ways. One, they can pay dividends earned from the funds' investments. And two, if a security held by a fund is sold at a profit, the fund can pay capital gains. As a shareholder, you own a proportionate share of the fund. Each share represents ownership in all the fund's underlying securities.
Funds pay dividends and capital gains in proportion to the number of fund shares owned.
Mutual funds provide an assortment of investment options. A fund's portfolio manager typically invests in as many as 50 to 200 or more different securities. In effect, they put your money in many baskets instead of just one. Only the most affluent investors can attain the diversification on their own that mutual funds can for their shareholders. Personal Management With mutual funds, you have built-in professional money managers who base their buying and selling decisions on extensive, ongoing economic research.