A mutual fund, according to the U.S. Securities and Exchange Commission, is \”a company that brings together money from many people and invests it in stocks, bonds or other assets.\” In other words, a mutual fund is like a basket, and that basket holds assets, like stocks. When you buy a mutual fund, you purchase a piece of the fund, or basket. You do not actually own any of the assets the mutual fund owns.
But while you may not own the assets themselves, the value of the fund is based on the value of the assets it holds. As the stocks, bonds or assets within the fund increase in value, the fund increases in value. Conversely, as the stocks, bonds or assets within the fund decrease in value, the fund also decreases in value.
Mutual funds are often run by an investment organization and are led by a fund manager, who is an expert on investing and makes choices as to where this money will be invested. They will evaluate the risks and rewards, analyze market trends, and based on these decide how the portfolio should be best managed.
Because mutual funds trade in large quantities at a time, its transaction costs are lower than what you would have incurred if you transacted in securities individually. This translates to mutual fund investors achieving a similar investment exposure but at lower overall costs via economies of scale.
At the end of 2016, mutual fund assets worldwide totaled $40.4 trillion, according to the Investment Company Institute. US, Luxembourg, Ireland are the top 3 countries with total AUM of $18.9 trillion, $3.9 trillion and $2.9 trillion respectively.
Mutual Funds are regulated by a governmental body like the US Securities and Exchange Commission and Hong Kong Securities and Futures Commission.