A pool of money set aside by one or several investors for a purpose. Some of the most common types of funds include pension funds, insurance funds, mutual funds and exchange-traded funds (ETFs). The objective being to earn money, funds are often professionally managed, and invested into a diversified portfolio of securities such as bonds, stocks or even other funds to be able to track or outperform a benchmark. Investors are typically individuals, financial institutions or governments.
Funds are an easy way to invest into an already diversified instrument, as bonds often contain several securities. Some funds tend to be multi-asset, which means they have different asset classes such as fixed income, equities and structured products. Some others are only composed of one single type of asset class. The securities contained in each fund are mainly at the discretion of the portfolio manager.
Mutual funds have become more and more popular in the last decade thanks to their liquidity, diversification and the advantages of being professionally managed. When you buy a mutual fund, you buy the performance of the portfolio’s value that represents the fund. That is why the price of mutual funds is given through the NAV (= Net Asset Value). Unlike stocks, there is no voting right associated with them.
A concrete way of finding more information about a mutual fund is to read the summary of its prospectus. A prospectus provides important details like fund objective, main holdings, main risks, and more.