Suppose you were to pool your investment dollars with those of other individuals who have similar investment objectives so that you could increase your buying power and afford to hire a professional money manager to invest and monitor the money. In essence, this is what you do when you invest in a mutual fund. A mutual fund is an investment company that manages a portfolio of stocks, bonds, money market instruments, or a combination of these investments. Individuals who purchase shares of a mutual fund participate in an entire portfolio of securities.
Every mutual fund holds a number of securities.
When you purchase shares of a mutual fund, you are essentially spreading your dollars, and therefore your risk, over many investments, rather than just one. Portfolio managers make investments in accordance with the guidelines and restrictions outlined in the fund's prospectus. These professionals have at their disposal current market information and the expertise to make informed investment decisions for the portfolio. Within these general categories, there are wide variations in the strategies employed by portfolio managers to achieve a particular fund's investment objectives. Growth funds vary widely in their investment strategies.