What are mutual funds ? What is their significance?

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What are mutual funds ? What is their significance?

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>A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities.

[Source](https://en.m.wikipedia.org/wiki/Mutual_fund).

So basically if you know someone that participates in the same mutual fund as you and get friendly with them then you are both… *mutual friends*. 🤗

Mutual funds are a form of organized investment. The fund works by collecting amounts from various investors into a bigger pool of money. That money is invested. So it is a form of collective investment.

The mutual fund is created by a company/person known as the fund manager. The company takes a small cut of the pool as their income and in return, they are supposed to research the market and invest the pool of money.

Because the funds typically spread investment to different projects or company and are professionally managed, mutual funds are considered safer for investors. Funds are important because they give small and new investors a way to invest in small amounts and still achieve some risk protection through diversification.

There are many types of mutual funds and their specializations as well as their benefits and drawbacks. It would be impossible to summarize in a reddit post. You can research more in sites like investopedia.com

They are baskets of stocks you can invest in with one purchase/trade, for diversification purposes. Rather than trying to pick a bunch of stocks yourself, you let a professional pick companies in which to invest.

Index funds are mutual funds that mirror a stock market index like the S&P 500 rather than somebody actively managing the selection of stocks.

It’s like you and 10 friends buying the same stocks except instead of 10 friends it’s a fund ran by a company that has 100s or 1000s of clients.

The idea is that with all the money your purchases alone will drive prices up. But also 1 stock drops you aren’t losing all your money.