Buying a mutual fund enables an investor to buy a number of different stocks, bonds, or a combination of both at the same time. Spreading investments across a wide range of companies and industry sectors can help lower the amount of risk. If a single company or sector fails, there's protection because other companies and sectors might do better, mitigating losses. Most investors find it easier to achieve diversification through ownership of mutual funds rather than through ownership of individual stocks or bonds.

It's very easy to buy and sell mutual funds. Mutual fund investors can redeem their shares at the current net asset value, at any time.

Some mutual funds accommodate investors who don't have a lot of money to invest by setting relatively low dollar amounts for initial purchases, subsequent monthly purchases, or both.

Mutual funds are run by professional investment specialists. Part of the total amount invested into a particular fund goes to pay the people managing it. These professional money managers research, select, and monitor the performance of the investments the fund purchases on a daily basis.

Just because an investor pays for professionals to manage a fund doesn't mean the performance will always be top-notch. Professionals make mistakes, they are not infallible. Consequently, the pay they receive for their work isn't always worth it.

Investors must pay sales charges, annual fees, and other expenses regardless of how the fund performs. And, depending on the timing of their investment, investors may also have to pay taxes on any capital gains distribution they receive — even if the fund went on to perform poorly after they bought shares.

Investors typically cannot ascertain the exact make-up of a fund's portfolio at any given time, nor can they directly influence which securities the fund manager buys and sells or the timing of those trades.

The price of the securities a fund owns may increase. When a fund sells a security that has increased in price, the fund has a capital gain. At the end of the year, most funds distribute these capital gains (minus any capital losses) to investors.

A fund may earn income in the form of dividends and interest on the securities in its portfolio. The fund then pays its shareholders nearly all of the income (minus disclosed expenses) it has earned in the form of dividends.

With dividend payments and capital gains distributions, funds usually provide a choice: the fund can send a check or other form of payment, or the dividends or distributions are reinvested into the fund to buy more shares.

If the market value of a fund's portfolio increases after deduction of expenses and liabilities, then the value (NAV) of the fund and its shares increases. The higher NAV reflects the higher value of your investment.