Mutual funds are a type of certified managed combined investment schemes that gathers money from many investors to buy securities. There is no such accurate definition of mutual funds, however the term is most commonly used for collective investment schemes that are regulated and available to the general public and open-ended in nature. Hedge funds are not considered as any type of mutual funds. Mutual funds are identified by their principal investments. They are the 4th largest category of funds that are also known as money market funds, bond or fixed income funds, stock or equity funds and hybrid funds. Funds are also categorized as index based or actively managed.

In a mutual fund, investors pay the funds expenditure. There is some element of doubt in these expenses. A single mutual fund may give investors a choice of various combinations of these expenses by offering various different types of share combinations.

The fund manager is also known as the fund sponsor or fund management company. The buying and selling of the funds investments in accordance with the funds investment is the objective. A fund manager has to be a registered investment advisor. The same fund manager manages the funds and has the same brand name which is also known as a fund family or fund complex. As long as mutual comply with requirements that are established in the internal revenue code, they will not be taxed on their income. Clearly, they must expand their investments, limit the ownership of voting securities, disperse most of their income to their investors annually and earn most of their income by investing in securities and currencies. Mutual funds can pass taxable income to their investors every year. The type of income that they earn remains unchanged as it gets transferred to the shareholders. For e.g., mutual fund distributors of dividend income are described as dividend income by the investor. There is an exception: net losses that are incurred by a mutual fund are not distributed or passed through fund investors.

Advantages of Mutual funds are:

1) Increase in diversification.

2) Liquidity on a daily basis.

3) Professional investment management.

4) Capacity to participate in investments that may be available only for larger investors.

5) Convenience as well as service.

6) Government oversight.

7) Easier comparison