Mutual Fund

Mutual funds are virtual companies that buy pools of stocks and/or bonds as recommended by an investment advisor and fund manager. The fund manager is hired by a board of directors and is legally obligated to work in the best interest of mutual fund shareholders. Most fund managers are also owners of the fund, though some are not.

There are very few other employees in a mutual fund company. The investment advisor or fund manager may employ some analysts to help pick investments or perform market research. A fund accountant is kept on staff to calculate the fund’s net asset value (NAV), or the daily value of the mutual fund that determines if share prices go up or down. Mutual funds need to have a compliance officer or two, and probably an attorney, to keep up with government regulations.

A mutual fund is both an investment and an actual company. This may seem strange, but it is actually no different than how a share of AAPL is a representation of Apple, Inc. When an investor buys Apple stock, he is buying part ownership of the company and its assets. Similarly, a mutual fund investor is buying part ownership of the mutual fund company and its assets. The difference is Apple is in the business of making smartphones and tablets, while a mutual fund company is in the business of making investments.

Mutual funds pool money from the investing public and use that money to buy other securities, usually stocks and bonds. The value of the mutual fund company depends on the performance of the securities it decides to buy. So when you buy a share of a mutual fund, you are actually buying the performance of its portfolio.