When investors put money into a mutual fund, it is pooled with money from other investors to create a larger portfolio than most individuals could create by investing on their own.
Most funds diversify their holdings by buying a wide variety of investments.
The portfolio created may include stocks, bonds or other securities and is managed by a professional investment company. Since a fund can own dozens or even hundreds of different securities, its success or failure is not going to be dependent on how well a handful of securities perform. Each mutual fund has a professional money manager who builds and manages the fund's portfolio in accordance with its stated investment objective. In order to invest in a mutual fund, an investor buys shares of the fund and becomes a shareholder. Most funds offer investors the option of reinvesting all or part of their distributions in the fund by buying more shares.