What Is a Fund
It is hard to spread your investment across dozens of companies on your own. But "if many people pool their money," this problem is solved at once. That is exactly what a fund is.
A Fund = a Basket for Pooling and Managing Money Together
A fund is a structure in which the money of many investors is pooled into one, and a professional management company invests it across many assets.
My $74, someone else's $74… this large pool of money buys dozens to hundreds of stocks all at once. So even with a small amount, diversification happens naturally.
The total value of the assets the fund holds, divided by the total shares, is the "net asset value (NAV)," and investors usually buy and sell at this NAV, which is set once a day.
A fund pools the money of many investors to buy a diversified portfolio. (Source: FundGuard, TheStreet)
A 100-Year-Old Idea
Funds are not a recent invention. The oldest surviving mutual fund in the United States, and its first, is the "Massachusetts Investors Trust (MIT)," launched in Boston in 1924.
This fund is regarded as the world's first "open-end" fund, an innovation that let investors buy and sell shares at any time. In 2024, the fund marked 100 years since its creation.
The very concept of pooling money to share risk goes back even further, to Britain in 1868 (the Foreign & Colonial Investment Trust).
MIT was established in March 1924 with initial capital of about $50,000. It is recorded as the first open-end mutual fund in the U.S. (Source: MFS official, TheStreet — cross-checked across 2 sources)
The Price of Convenience: Always Check the Costs
A fund's biggest advantage is the convenience that "a professional diversifies for you, automatically." Even beginners can invest in the whole market without picking stocks one by one.
But this convenience comes with a cost. Funds take fees each year, such as management fees and sales fees, and these costs eat into long-term returns even though they aren't very visible on the surface.
In particular, "active funds," where the manager actively picks stocks, generally have higher fees. When looking at a fund, you must check the "total expense (cost)" just as much as the return.
This article does not recommend any specific fund. For the same performance, higher fees mean less money in your hand in the end.
Frequently Asked Questions
Q. Is a fund's principal guaranteed?
No. A fund is not a deposit but an investment product, so principal loss is possible. If the value of the stocks and bonds it holds falls, the fund's NAV falls too, and it is not covered by deposit insurance. It is diversified, but the drawdown of the overall market is reflected as is.
Q. Can I sell a fund right away at any time?
Most funds are redeemed (sold) at the NAV set once a day. Unlike stocks, you don't buy and sell instantly in real time; in many cases you receive the money a few days after your request. If you want real-time trading, see the next concept, ETFs.
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📋 This service is provided for educational purposes to help you understand investing, not as investment advice.