Glossary · Funds and derivatives
Mutual fund
A mutual fund pools money from many people and invests it in stocks, bonds or both; each investor owns shares of the fund, priced once a day.
Also called: open-end fund, unit trust, investment fund, mutual funds
$18.6T of corporate shares, Q2 2026. Peak: 25.3% in 2008.
$12.8T, Q2 2026.
In plain words
Ten friends each have $100 and want to own shares of many companies, but $100 does not buy much. So they put their money in one pot, hire someone to invest the $1,000, and agree that each owns a tenth of whatever the pot becomes. That is a mutual fund, only with thousands or millions of savers instead of ten friends.
Each saver owns shares of the fund, not the stocks directly. The fund’s price per share, its net asset value (NAV), is worked out once a day after the market closes: everything the fund owns, minus what it owes, divided by the number of shares. Buy or sell during the day and you get that evening’s price.
Some mutual funds are run by a manager who picks investments (active funds); others simply copy an index (index funds). Either way the fund charges a yearly fee, the expense ratio.
Example
How your share of the pot grows
- A fund holds $10,000,000 of stocks and has 500,000 shares: NAV = $20.
- You put in $2,000 and receive 100 new shares. The fund now holds $10,002,000 and has 500,100 shares: still $20 each.
- The stocks rise 10%. The fund is worth $11,002,200, so NAV = $22.00, and your 100 shares are worth $2,200.
- The yearly fee of 0.5% is taken from the fund bit by bit, every day: about $11 a year on your $2,200, which you never see as a bill.
You share the gains and losses of the whole pot, in proportion to the shares you own.
One level deeper
The first US mutual fund of today’s kind, the Massachusetts Investors Trust, opened in Boston in 1924. A fund like it is called open-end: it creates new shares whenever someone invests and buys them back whenever someone leaves. A closed-end fund has a fixed number of shares that trade on an exchange, often above or below the value of what it holds.
Since the 1990s, ETFs have taken much of the new money. They usually cost less, trade all day, and in the US tend to pass on fewer taxable capital gains, because they can hand back stocks instead of selling them. Mutual funds hold 15.1% of all corporate shares counted in the Fed’s Financial Accounts, ETFs 10.3% (Q2 2026).
Costs to watch: the expense ratio, sometimes a sales charge (a load) when you buy or sell, and the trading costs inside the fund. Actively managed funds also try to beat an index, and most fail to after fees over long periods.
Mutual funds and ETFs: their share of all US stocks
Mutual funds held under 2% of American companies’ shares in the early 1950s. Their share peaked at 25.3% in Q2 2008. ETFs, which first appeared in 1993, now hold 10.3%, and mutual funds 15.1%.
The numbers behind the chart
| Date | Mutual funds | ETFs |
|---|---|---|
| Q1 1952 | 1.5% | — |
| Q4 1960 | 3.5% | — |
| Q4 1970 | 4.8% | — |
| Q4 1980 | 3.4% | — |
| Q4 1990 | 7.1% | — |
| Q4 2000 | 21.4% | 0.4% |
| Q4 2010 | 24.0% | 3.1% |
| Q4 2020 | 20.9% | 6.6% |
| Q4 2022 | 18.6% | 7.9% |
| Q4 2023 | 18.1% | 8.4% |
| Q4 2024 | 16.9% | 9.0% |
| Q4 2025 | 15.7% | 9.9% |
| Q2 2026 | 15.1% | 10.3% |
Why it matters
Mutual funds are how most families came to own stocks, especially through retirement plans such as 401(k)s.
Their fees and taxes add up over decades. Two funds holding similar stocks can leave you with very different sums, as the expense ratio page shows.
They are big enough to move markets: when savers pull money out in a panic, funds have to sell.
A common mistake
Myth: A mutual fund is guaranteed or insured, like a bank deposit.
In fact: It is not. A stock fund can fall as much as the market it holds, and deposit insurance does not cover mutual funds, even when you buy one at a bank. Only money market funds aim to keep a stable $1 share price, and even that is not guaranteed.
Questions people ask
What is the difference between a mutual fund and an ETF?
Both pool money in a basket of investments. A mutual fund is bought from the fund company at a once-a-day price; an ETF trades on the stock exchange all day like a share. ETFs are usually cheaper and, in the US, often pay out less in taxable gains.
How do mutual funds make money for investors?
Three ways: the dividends and interest of what the fund holds, the gains when it sells investments for more than it paid, and a rise in its NAV. Most funds pay the first two out once or more a year, or reinvest them for you.
Are mutual funds a good idea for beginners?
That depends on the fund, its fees and your goals, and this page does not give advice. What helps any beginner is to compare the expense ratio and to know whether the fund follows an index or tries to beat one.
Read more on BigCapital
About the numbers
- The numbers on this page are recalculated from the data every night; the sources are listed at the end of the page.
- US corporate equities by holder (Z.1): Board of Governors of the Federal Reserve System, Financial Accounts of the United States (Z.1), table F51.1.s Corporate equities and table S1M.e.b.
- The Fed’s Financial Accounts count the shares held by mutual funds and by ETFs whatever they hold them for, index or active. The total includes shares of companies that are not listed on an exchange.
- This page explains a term. It is not investment advice.