<P> A mutual fund is a professionally managed investment fund that pools money from many investors to purchase securities . These investors may be retail or institutional in nature . Mutual funds have advantages and disadvantages compared to direct investing in individual securities . The primary advantages of mutual funds are that they provide economies of scale, a higher level of diversification, they provide liquidity, and they are managed by professional investors . On the negative side, investors in a mutual fund must pay various fees and expenses . It remains unclear whether mutual fund management can reliably produce an increase in investment returns exceeding these fees and expenses . </P> <P> Primary structures of mutual funds include open - end funds, unit investment trusts, and closed - end funds . Exchange - traded funds (ETFs) are open - end funds or unit investment trusts that trade on an exchange . Mutual funds are also classified by their principal investments as money market funds, bond or fixed income funds, stock or equity funds, hybrid funds or other . Funds may also be categorized as index funds, which are passively managed funds that match the performance of an index, or actively managed funds . Hedge funds are not mutual funds; hedge funds cannot be sold to the general public and are subject to different government regulations . </P>

Who accepts all of the risk associated with a mutual fund’s portfolio of stocks and/or bonds