A mutual fund lets you invest in a group of stocks or other investments picked by a professional investor. A fund often offers a broader range of investments than you could buy on your own.
How do mutual funds work?
- When you put your money in a mutual fund along with many other people, it creates a large pool of money that can be invested. The company that runs the mutual fund puts a professional in charge of investing the money. This person is the fund manager.
- The fund manager decides where to invest the money and manages it for all of the investors, so you don't have to decide what to do. The manager also decides when to buy and sell investments for the mutual fund.
- You put money into a mutual fund by buying units of the fund. You can choose a fund that buys the kinds of investments that you're comfortable with, and that will help you meet your goals. Is the most important thing to keep your money safe? Get regular income? Grow your money? The fund you choose must be right for you.
How do I make money from a mutual fund?
- The price of your units will go up if the investments in the fund do well, and you will make money if you sell. If they are not doing well, the unit price falls. You will lose money if you decide to sell your units when the price has dropped.
- In some cases, the money the fund makes will be distributed to its investors in the from of cash or additional units.
Remember: With mutual funds, you have fewer decisions
You are putting your money in the hands of a professional. You do this hoping that you will make more money than you could on your own. For some investors, this is not the best choice. It depends on what kind of investor you are.
Content in this section is provided in partnership with the Investor Education Fund, a non-profit organization promoting financial literacy to Canadians. To find out more go to GetSmarterAboutMoney.ca.