Knowing something about mutual fund basics can be helpful even if you don't plan on becoming a financial expert.  A mutual fund is just a type of investment that is made up of many other kinds of investments.  Investors like mutual funds because they are designed to minimize risk. This is possible (in theory anyway) because the mutual fund is made up of many different kinds of investments. For example, let's say that the steel industry is not doing well because people are not buying very many new cars.  If you own shares of stock from a steel company, you would probably lose money because all of your cash was in the steel company. If you owned a mutual fund that had a small investment in the steel company, you probably would not lose as much money.  Hopefully, you would actually make money because the fund would have money invested in other areas that are doing well.  Of course, this is a very simple example and investing in mutual funds does not guarantee that you will make money in every circumstance.  Again, the mutual fund basics show us that the idea is to spread money over lots of different kinds of investments so that if even several areas drop, the others will not drop as much or will even increase.

Investments in mutual funds are made through purchasing shares of the fund, similar to buying shares of stock.   Mutual funds also pay distributions like a stock would pay dividends.   This is also in addition to any increase in the share price of the fund.   You can see how your fund is doing by checking the business section of most major newspapers.   Getting started in investing will require a minimum purchase of shares, which could be anywhere from several hundred dollars to several thousand dollars or more.   All mutual funds have fees and surcharges and some may charge commissions. The mutual fund companies use these costs to run their businesses.   Be sure to research these potential charges as carefully as you would research the fund's performance, because they really can impact your bottom line.

There are probably hundreds of different mutual fund companies offering thousands of different mutual funds.  Even though they all have the same goal of making money, each one goes about it differently. Some funds could be made up of mostly bonds, which would make them pretty conservative. Mutual funds comprised of a lot of stocks are considered more aggressive, which means they can make or lose money quickly.   In general, funds with a lot of bonds are considered to be good short-term investments; whereas stock funds are considered to be better long-term investments.  On the flip side, a fund could be made up of riskier, more aggressive bonds or more conservative stocks.   So you see the different combinations of investments are practically endless.

If you want to go beyond the basics of mutual funds, there are many good books out there, or you can even take a class.  Sometimes there is no substitute for experience, so you may want to try your hand at investing in mutual funds.   Just remember, don't invest more than you are willing to lose and that investing is no guarantee that you will make money. Now you’ve got the mutual fund basics covered.