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Chapter 8: Problem 44

What is a mutual fund?

Short Answer

Expert verified
A mutual fund is a type of investment vehicle that collects money from numerous investors to create a large pool of money that can be invested in a diversified portfolio. Investors in the fund get a share of the portfolio proportional to their investment. The fund is professionally managed.

Step by step solution

01

Definition

A mutual fund is a type of investment vehicle. It is a company that pools money from many investors and invests the money in securities such as stocks, bonds, and short-term debt.
02

Explanation of working

The combined holdings the mutual fund owns are known as its portfolio. Each investor in the mutual fund gets a portion of the portfolio proportional to the amount of money they invested. The performance of the holdings within the portfolio will directly impact the performance of the mutual fund.
03

Understanding benefits

Mutual funds are popular because they make it easy for small or individual investors to invest their money in diversified portfolios. Mutual funds also provide the advantage of professional management of the fund.

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