What are mutual funds?

A mutual fund is an investment vehicle that pools money from multiple investors to purchase a diversified
portfolio of securities, such as stocks, bonds, or other assets. Managed by professional portfolio managers, mutual funds offer individual investors access to a broad range of investments that they might not be able to afford or manage on their own. Mutual funds typically invest in a wide variety of securities, spreading risk across multiple assets. This diversification helps reduce the impact of any single investment’s poor performance on the overall portfolio.

Mutual funds charge various fees, including management fees (also known as the expense ratio), which cover the cost of managing the fund. Some mutual funds may also charge sales loads, which are fees paid when purchasing (front-end load) or selling (back-end load) shares.

Mutual funds are subject to market risk, meaning the value of the fund can fluctuate based on the performance of the underlying assets. There is also management risk, where the decisions of the portfolio manager may not align with the fund’s objectives or outperform the market. Mutual funds offer the potential for capital appreciation, income, and access to professionally managed, diversified portfolios.

The composition of each ETF depends upon its specific theme of investment. An ETF may have a dedicated focus on growth, value, fixed income, or a sector. Therefore, which ETF is suitable for you depends upon your financial and risk profile as we have discussed above. Keep in mind that mutual funds have a higher management expense and tax burden.