A mutual fund is simply a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. As you probably know, mutual funds have become extremely popular over the last 20 years. What was once just another obscure financial instrument is now a part of our daily lives. In fact, to many people, investing means buying mutual funds. After all, it’s common knowledge that investing in mutual funds is (or at least should be) better than simply letting your cash waste away in a savings account. 

Definition: 

A mutual fund is nothing more than a collection of stocks and/or bonds. You can make money from a mutual fund in three ways: 

• Income is earned from dividends on stocks and interest on bonds. A fund pays out nearly all income it receives over the year to fund owners in the form of a distribution.
• If the fund sells securities that have increased in price, the fund has a Capital Gain. Most funds also pass on these gains to investors in the form of distribution.
• If fund holdings increase in price but are not sold by the fund manager, the fund’s shares increase in price. You can then sell your mutual fund shares for a profit.