Mutual funds collect money from investors and invest the capital in various assets like stocks, bonds, and short-term debt. They are managed by professionals known as portfolio managers.
The main advantages of mutual funds are diversification, expert management, and economies of scale. Even small investments can give you exposure to hundreds of different companies.
Investors can choose between active and passive mutual funds. Active funds try to beat the market index, while passive funds (like index funds) match the performance of a specific index.
Before investing, always review the fund's expense ratio, historical performance (though past performance is not a guarantee of future results), and exit loads.