Mutual Fund

A mutual fund collects money from many investors and buys a portfolio with it. You own shares of the fund rather than the underlying securities, and those shares are priced once daily at net asset value after the close — an order placed at noon executes at that evening's price, not the price you saw when you placed it.

The wrapper says nothing about the strategy. Mutual funds come both actively managed, where a manager selects holdings and charges for the attempt, and passively indexed, where the fund simply tracks a benchmark at minimal cost. The spread in expense ratios between the two is where most of the long-run difference in outcomes lives.

Share classes complicate the shelf. Some classes carry a sales load — a commission charged on purchase or on sale — and others do not. No-load funds are widely available and there is rarely a reason to pay a load.

Against ETFs, mutual funds trade two things. They allow automatic recurring investment in exact dollar amounts, which suits payroll-driven saving, but they often impose minimum investments and they can distribute capital gains to shareholders who never sold anything, making them less tax-efficient in a taxable account.

For most people the question is academic: workplace retirement menus are built almost entirely from mutual funds, which is where the large majority of Americans own them.