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What is a mutual fund? Why might a person buy shares in a mutual fund rather...

What is a mutual fund? Why might a person buy shares in a mutual fund rather than buy shares of individual corporations?

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Mutual Funds: Mutual funds pool investments to invest in stocks, bonds and other securities. The mutual funds can be index funds which replicate risk and return profile of the market index. Here the investors are retail or mutual fund houses. They need to be registered with the SEC.

Single stock has systematic and unsystematic risk whereas mutual funds helps in diversifying unsystematic risk . Hence it provides returns without undue risk.It invests in a pool of securities unlike investing in a standalone stock. Hence mutual funds provides balanced returns while reducing risk.

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