Mutual funds are managed by professionals who buy various types of collective investment securities -- namely, stocks, bonds, unit trusts, commercial paper, bankers' acceptances, real estate and precious metals. Of these, stocks and bonds are considered to be the most common investment securities to be traded in the market. While stocks represent shares of ownership in a public company, bonds represent the money that a person lends to the government or a company, and, in return, receives interest over a predetermined period of time on the amount lent.
A mutual fund has a fund manager who is responsible for investing the collected money into such securities. The mutual fund managers help individual investors manage their funds, take care of accounts and invests money over a myriad available securities.
It must however be remembered that when investing in a mutual fund, investors places their money in the hands of a professional manager. The return on investments depends heavily on that manager's skill and judgment. As research has shown that few portfolio managers are able to outperform the market, a person must check the fund manager's track record over a period of time when selecting a fund.
It follows from the fact that a person investing in a mutual fund is the buyer of units or portions of the fund, and hence becomes a shareholder or unit holder of the fund.
