A mutual fund is created when a company brings together money from many people and invests it in stocks, bonds, or other securities. The advantage of investing in a mutual fund is that your investment is diversified among stocks and possibly bonds of several different companies depending on the type of mutual fund.  Several companies offer different types of mutual funds.

Investors in mutual funds buy shares in the mutual fund at the Net Asset Value (NAV) of the fund plus any sales charge or "load".  In the simplest terms, the NAV or share price is computed by adding up the market value of all the fund's different stocks and bonds and dividing that by the total number of mutual funds shares outstanding.   When investors sell mutual fund shares, the fund will pay them the NAV less any sales load. A fund's NAV goes up or down daily as its holdings' market values change.  As such, your investment in a mutual fund can lose or gain value, and you are assuming more risk in a mutual fund than with other guaranteed investments such as a savings account or certificate of deposit/share certificate.

Example: You invest $1,000 in a mutual fund with an NAV of $10.00. You will therefore own 100 shares of the fund. If the NAV drops to $9.00 (because the value of the fund's portfolio has dropped), you will still own 100 shares, but your investment is now worth $900. If the NAV goes up to $11.00, your investment is worth $1,100. (This example assumes no sales charge or "load.")