A mutual fund is a company that is created and managed to hold a portfolio of securities as an investment company registered with the U.S. Securities and Exchange Commission under the Investment Company Act of 1940, as amended.
Investors purchase shares of the mutual fund, and the value of those shares typically rises and falls based on the performance of the mutual fund’s underlying investments. The underlying investments of a mutual fund may include shares of companies in a variety of business sectors, bonds, cash equivalents, etc.
The mutual fund uses the money it raises from selling its shares to fund its purchases of underlying investments. A mutual fund may pay dividends to its investors. It also charges management fees.