A Mutual Fund is a type of professionally managed collective investment tool which pools funds from many investors to purchase securities. Through a professional fund administrator it invests the common monies on the stock market, most often by purchasing shares and bonds. Funds differ depending on the investment strategy which they follow, thus there exist, for example:
- Bond funds
- Mixed (hybrid) funds
- Stock (equity) funds
- Money market funds
Mutual funds in practice: For his share in the fund, each investor receives a share certificate and becomes thus a stake holder of the fund. Investors can be legal persons as well as natural persons. Companies can invest their available capital with the help of mutual funds.
The common monies of the mutual funds are administered through a professional administrator in the form of an investment company. One of the main advantages of an investment fund is the relatively low risk and also the fact that through these funds it is possible to invest even relatively small amounts of money as they are pooled with other investments and administered by a professional.