A mutual fund is an investment vehicle that pools money from many investors and "mutually" buys stocks, bonds, and other securities. The investments are professionally managed, making mutual funds a simple way to get broad exposure without having to constantly monitor the performance of many different investments.
A mutual fund is at its core a managed portfolio of stocks and/or bonds. You can think of a mutual fund as a company that brings together a large group of people and invests their money on their behalf in this portfolio. Each investor owns shares of the mutual fund, which represent a portion of its holdings.
Mutual funds are a versatile investment that can help meet your portfolio needs.
Whether you want to build and manage your own portfolio or prefer the simplicity and convenience of a managed solution, Schwab can help.
Both mutual funds and exchange-traded funds (ETFs) pool money from many investors and invest that money in securities. Likewise, many investors own a mix of these funds. Before you decide on what's right for you, there are things to consider.
Both generally provide broad, diversified exposure to an asset class, region, or a specific market niche, without having to buy lots of individual securities. Will outperform benchmarks. As such, actively managed funds are usually more expensive.
Mutual fund trades are executed once a day, at a single price. ETFs are "exchange-traded" and can be bought and sold intraday at different prices.
Mutual funds offer you a range of benefits.
Diversification
Access a mix of asset classes, including domestic and international stocks, bonds, and commodities.
Low costs
Reduce your investing costs with no-transaction fee (NTF) mutual funds from leading fund families.
Convenience
One investment can give you cost-effective exposure to dozens—or even hundreds or thousands—of individual securities.
Professional management
Eliminate much of the research, buying, and tracking of securities, as mutual funds are professionally managed.
What fees and costs are associated with mutual funds?
Investing costs can be a key factor in your net return. It's important to understand how mutual funds assess fees and expenses. These fall into three broad categories:
Operating expense ratio (OER)
OERs cover the fund's operating expenses and are annually factored into the total return you receive.
Load
A load is a one-time commission some fund companies charge whenever you buy or sell shares in certain load-based mutual funds.
Transaction fee
Brokerage firms may charge a trading fee whenever you buy or sell mutual fund shares.
Common mutual funds
These funds aim to meet the fund's objectives by investing in traditional assets (equities, fixed income, and/or cash) using traditional strategies (fundamental relative value, indexing, etc.). A large majority of funds fall into this category.
Specialty mutual funds
These funds aim to meet the fund's objectives through non-traditional investments and trading strategies, such as investing in commodities, or making investments based on environmental or social governance guidelines.