Course Outline

Dictionary of Economics

Course (113 videos)

Mutual Funds

What are mutual funds?

A mutual fund is a portfolio of assets like stocks and bonds that is managed, actively or passively, by professionals who charge a management fee.

What does it mean for a mutual fund to be actively managed? For this type of mutual fund, experts picks stocks and bonds and charge fees.

In the case of passively managed mutual funds, no one is actively picking the stocks and bonds. Instead, it is a big basket of stocks. As you might guess, the fees for passively managed mutual funds are much lower than they are for the actively managed ones.

Want to learn more about personal finance from an economist’s perspective? Check our Investing section of Money Skills.

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Transcript

What is a mutual fund? Rather than picking a particular stock, many people invest in the stock market by buying a mutual fund, a portfolio of assets like stocks and bonds managed by professionals for a management fee. There are thousands of mutual funds, but we can broadly break them into two types -- actively managed and passively managed.

 

As its name suggests, actively managed funds are actively managed. Experts pick stocks and bonds and charge fees. Passive mutual funds, on the other hand, aren't actively managed. No one is trying to pick winners or avoid losers. Passive mutual funds are simply an investment portfolio of a big basket of stocks, such as the S&P 500, which is a basket of 500 large stocks that represent the U.S. economy. The fees for a passive fund are much lower than an active fund, since no expert is actively managing the fund.

 

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