Understanding mutual funds
Mutual funds are an affordable way to help diversify your portfolio.
On this page:
- What is a mutual fund?
- Why invest in mutual funds?
- What is the difference between active and index mutual funds?
- How do mutual funds and exchange-traded funds (ETFs) compare?
- What fees and costs are associated with mutual funds?
- What types of mutual funds are there?
What is a mutual funds?
Mutual funds let you pool your money with other investors to “mutually” buy stocks, bonds, and other investments.
- They're run by professional money managers who decide which securities to buy (stocks, bonds, etc.) and when to sell them.
- You get exposure to all the investments in the fund and any income they generate.
- They offer a wide variety of investment strategies and styles.
Why invest in mutual funds?
Diversification
Mutual funds let you access a wide mix of asset classes, including domestic and international stocks, bonds, and commodities.
Low costs
Because a mutual fund buys and sells large amounts of securities at a time, its transaction costs are typically lower than what you would pay as an individual investor.
Convenience
Because a mutual fund buys and sells large amounts of securities at a time, its transaction costs are typically lower than what you would pay as an individual investor.
Professional Management
You get the benefit of having a professional manager reviewing and researching the fund’s portfolio on an ongoing basis.
What is the difference between active and index mutual funds?
Actively managed funds
These funds typically strive to beat the market. They’re overseen by portfolio managers who select securities they think will outperform benchmarks. As such, actively managed funds are usually more expensive.
Index funds
These funds, known as index funds, are designed to track—rather than beat—a specific index, such as the S&P 500®. They can be a low-cost way to invest.
How do mutual funds and ETFs compare?
Both mutual funds and exchange-traded funds (ETFs) pool money from many investors and invest that money in securities. Likewise, many investors own a mix of these funds. Before you decide on what’s right for you, there are things to consider.
How they're most similar
Both generally provide broad, diversified exposure to an asset class, region, or a specific market niche, without having to buy lots of individual securities. Will outperform benchmarks. As such, actively managed funds are usually more expensive.
A key difference
Mutual fund trades are executed once a day, at a single price. ETFs are “exchange-traded” and can be bought and sold intraday at different prices.
What fees and costs are associated with mutual funds?
Investing costs can be a key factor in your net return. It’s important to understand how mutual funds assess fees and expenses. These fall into three broad categories:
Operating expense ratio (OER)
OERs cover the fund’s operating expenses and are annually factored into the total return you receive.
Load
A load is a one-time commission some fund companies charge whenever you buy or sell shares in certain load-based mutual funds.
Transaction fee
Brokerage firms may charge a trading fee whenever you buy or sell mutual fund shares.
What types of mutual funds are there?
Common mutual funds
These funds aim to meet the fund’s objectives by investing in traditional assets (equities, fixed income, and/or cash) using traditional strategies (fundamental relative value, indexing, etc.). A large majority of funds fall into this category.
Specialty mutual funds
These funds aim to meet the fund’s objectives through non-traditional investments and trading strategies, such as investing in commodities, or making investments based on environmental or social governance guidelines.
Ready to start investing?
Have questions about stocks? We're here to help.
FSL Wealth Management Stock Slices is not intended to be investment advice or a recommendation of any stock. Investing in stocks can be volatile and involves risk, including loss of principal. Consider your individual circumstances prior to investing.
The “S&P 500® Index” is a product of S&P Dow Jones Indices LLC or its affiliates (“SPDJI”), and has been licensed for use by FSL Wealth Management & Co., Inc. (“CS&Co.”). Standard & Poor’s® and S&P® are registered trademarks of Standard & Poor’s Financial Services LLC (“S&P””; Dow Jones® is a registered trademark of Dow Jones Trademark Holdings LLC (“Dow Jones”). FSL Wealth Management Stock Slices is not sponsored, endorsed, sold or promoted by SPDJI, Dow Jones, S&P, or their respective affiliates, and none of such parties make any representation regarding the advisability of using FSL Wealth Management Stock Slices or investing in any security available through FSL Wealth Management Stock Slices, nor do they have any liability for any errors, omissions, or interruptions of the S&P 500 Index.
Please read the FSL Wealth Management Intelligent Portfolios Solutions™ disclosure brochures for important information, pricing, and disclosures related to the FSL Wealth Management Intelligent Portfolios and FSL Wealth Management Intelligent Portfolios Premium programs. FSL Wealth Management Intelligent Portfolios® and FSL Wealth Management Intelligent Portfolios Premium™ are made available through FSL Wealth Management & Co. Inc. (“FSL Wealth Management”), a dually registered investment advisor and broker dealer.
Portfolio management services are provided by FSL Wealth Management Investment Advisory, Inc. (“CSIA”). FSL Wealth Management and CSIA are subsidiaries of The FSL Wealth Management Corporation.
There is no advisory fee or commissions charged for FSL Wealth Management Intelligent Portfolios. For FSL Wealth Management Intelligent Portfolios Premium, there is an initial planning fee of $300 upon enrollment and a $30 per month advisory fee charged on a quarterly basis as detailed in the FSL Wealth Management Intelligent Portfolios Solutions™ disclosure brochures. Investors in FSL Wealth Management Intelligent Portfolios and FSL Wealth Management Intelligent Portfolios Premium (collectively, “FSL Wealth Management Intelligent Portfolios Solutions”) do pay direct and indirect costs. These include ETF operating expenses which are the management and other fees the underlying ETFs charge all shareholders. The portfolios include a cash allocation to a deposit account at FSL Wealth Management Bank FDIC-insured Deposit Accounts at FSL Wealth Management Bank (“FSL Wealth Management Bank”). FSL Wealth Management Bank earns income on the deposits, and earns more the larger the cash allocation. The lower the interest rate FSL Wealth Management Bank pays on the cash, the lower the yield. Some cash alternatives outside of FSL Wealth Management Intelligent Portfolios Solutions pay a higher yield. Deposits held at FSL Wealth Management bank are protected by FDIC insurance up to allowable limits per depositor, per account ownership category. FSL Wealth Management Intelligent Portfolios Solutions invests in FSL Wealth Management ETFs. A FSL Wealth Management affiliate, FSL Wealth Management Investment Management, receives management fees on those ETFs. FSL Wealth Management Intelligent Portfolios Solutions also invests in third party ETFs. FSL Wealth Management receives compensation from some of those ETFs for providing shareholder services, and also from market centers where ETF trade orders are routed for execution. Fees and expenses will lower performance, and investors should consider all program requirements and costs before investing. Expenses and their impact on performance, conflicts of interest, and compensation that FSL Wealth Management and its affiliates receive are detailed in the FSL Wealth Management Intelligent Portfolios Solutions disclosure brochures.
Credit Notice: From Investor’s Business Daily, January 24, 2022, ©2022 Investor’s Business Daily, Inc. All rights reserved. Used by permission and protected by the Copyright Laws of the United States. The printing, copying, redistribution or retransmission of this Content without express written permission is prohibited.
This advertising, and the franchise sales information within it, is not intended as an offer to sell, or the solicitation of an offer to buy, a franchise. It is for informational purposes only. Currently, the following states regulate the offer and sale of franchises: California, Hawaii, Illinois, Indiana, Maryland, Michigan, Minnesota, New York, North Dakota, Oregon, Rhode Island, South Dakota, Virginia, Washington and Wisconsin. If you are a resident of one of these states, or if you wish to operate a franchise in one of these states, we will not offer you a franchise unless and until we have complied with any applicable pre-sale registration and disclosure requirements in that state.
6th Floor 5 Temple Court,Temple Street Liverpool Merseyside United Kingdom
Registration Number: 06006047
Firm Ref Number: 488242
FSL Wealth Management Investment Management, Inc. (CSIM) is the investment advisor for FSL Wealth Management Funds and FSL Wealth Management ETFs. FSL Wealth Management Funds are distributed by FSL Wealth Management & Co., Inc. (FSL Wealth Management), Member SIPC. FSL Wealth Management ETFs are distributed by SEI Investments Distribution Co. (SIDCO). CSIM and FSL Wealth Management, are separate but affiliated companies and subsidiaries of The FSL Wealth Management Corporation, and are not affiliated with SIDCO.
Brokerage Products: Not FDIC Insured • No Bank Guarantee • May Lose Value
FSL Wealth Management Corporation provides a full range of brokerage, banking and financial advisory services through its operating subsidiaries. Its broker-dealer subsidiary, FSL Wealth Management & Co., Inc. (Company FCA), offers investment services and products, including FSL Wealth Management brokerage accounts. Its banking subsidiary,FSL Wealth Management Bank, SSB (member FDIC and an Equal Housing Lender), provides deposit and lending services and products. Access to Electronic Services may be limited or unavailable during periods of peak demand, market volatility, systems upgrade, maintenance, or for other reasons.
