What Is a Mutual Fund?

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- [Narrator] 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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To learn more
about investing, click here.

Or, to test your knowledge
on mutual funds, click here.

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