Ideally, a fund's size and resultant efficiency, combined with experienced management , provide advantages for investors that include diversification , expert stock and bond selection, low costs, and convenience. In terms of legal structure, a mutual fund is a corporation that receives preferential tax treatment under the U.S. Internal Revenue Code. The assets of a mutual fund consist almost entirely of the securities it holds in its portfolio . The most common type of mutual fund, called an open-end fund , allows investors to buy and sell stock in it on an ongoing basis. How it Works.
Investors thus become part-owners of the fund itself, and thereby the assets of the fund.
The fund, in turn, uses investors' cash to purchase securities, such as stocks and bonds. The value of the shares of an open-end mutual fund is readily determined.