Many people think mutual funds are a type of investment just like stocks or bonds. Actually, they're just a way to invest in one or more of these types of securities. When you buy shares in a mutual fund, you pool your money with other investors to buy those stocks or bonds.
Funds have different goals, called investment objectives.
A fund's goal determines what kinds of securities it buys and guides a professional manager in picking individual securities for the fund to buy. The fund's prospectus can tell you what its investment objective is. There are many kinds of mutual funds. A full-time professional money manager or committee chooses the fund's investments based on the fund's objectives. Also, because the fund buys many different securities, your investment risk is lower than if you were relying solely on any one of those securities alone.