Getting Started Building a Trading Career Tools and Resources Glossary - Backtesting
- Backtesting Depth
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- Margin Trading
- Market Capitalization
- Mutual Fund
- Market Trends
- Moving Averages
- Price-to-Earnings Ratio (P/E Ratio)
- Portfolio Diversification
- Positions in Prosperse
- Risk Management
- Scalping
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Glossary - Mutual Fund
Mutual Fund definition
An investment vehicle that pools money from multiple investors to purchase a diversified portfolio of stocks, bonds, or other securities.A mutual fund is an investment vehicle that pools money from multiple investors to purchase a diversified portfolio of stocks, bonds, or other securities. Managed by professional portfolio managers, mutual funds offer investors an easy way to diversify their investments, access professional management, and participate in a wide range of asset classes.
Use Cases
For example, an investor who wants exposure to a broad range of large-cap U.S. stocks might invest in a mutual fund that tracks the S&P 500. The fund would hold a portfolio of stocks that reflect the index, providing the investor with diversified exposure to the U.S. equity market. Mutual funds are also available for bonds, international markets, and specific sectors.
Mutual funds are popular among investors looking for long-term growth, income, or a combination of both. They are often used in retirement accounts, such as 401(k)s and IRAs, due to their diversification and professional management.
Historical Context
The first mutual fund was created in 1924 in the United States. Over the decades, mutual funds have grown to become one of the most popular investment vehicles for individual investors, offering a wide range of choices from actively managed funds to passive index funds. Mutual funds have democratized investing, allowing individuals to access professional management and diversification that were once only available to wealthy investors.
Prosperse provides tools to help investors analyze and compare mutual funds, enabling them to choose funds that align with their investment goals and risk tolerance.
Related Terms:
- Index Fund: A type of mutual fund or exchange-traded fund (ETF) that tracks a specific market index.
- ETF: An Exchange-Traded Fund (ETF) is a type of investment fund that holds a collection of assets, such as stocks, bonds, or commodities, and is traded on a stock exchange.
Frequently Asked Questions
What is a mutual fund?
A mutual fund is an investment vehicle that pools money from multiple investors to purchase a diversified portfolio of stocks, bonds, or other securities. Managed by professional portfolio managers, mutual funds offer diversification and access to professional management.
How does a mutual fund work?
A mutual fund collects money from investors and uses it to buy a diversified portfolio of assets. The fund's performance reflects the performance of the underlying assets, and investors earn returns based on their share of the fund.
What are the benefits of investing in a mutual fund?
The benefits of investing in a mutual fund include diversification, professional management, and ease of access to a wide range of asset classes. Mutual funds are ideal for investors looking for long-term growth, income, or a combination of both.
What types of mutual funds are available?
There are various types of mutual funds, including equity funds (which invest in stocks), bond funds (which invest in bonds), balanced funds (which invest in a mix of stocks and bonds), and index funds (which track a specific market index). Each type has its own risk and return profile.
Are mutual funds suitable for all investors?
Mutual funds are generally suitable for most investors, particularly those looking for a diversified, professionally managed investment. They are often recommended for retirement accounts and for investors who prefer a hands-off approach to investing.
How do mutual funds compare to ETFs?
Mutual funds and ETFs both offer diversification, but mutual funds are typically traded at the end of the trading day at the fund's net asset value (NAV), whereas ETFs are traded throughout the day at market prices. Mutual funds may also have higher fees and expenses than ETFs.
Can I lose money in a mutual fund?
Yes, like any investment, mutual funds are subject to market risks, and their value can fluctuate based on the performance of the underlying assets. Investors can lose money if the value of the fund's holdings declines.
