Mutual funds simply are a method through which people invest. People often asking, “What are mutual funds paying?” The truth is that mutual funds don’t pay anything! People also say, “I don’t like mutual funds because they’re risky.” But there’s no such thing as a “risky” fund. Nor has anyone ever lost money in a mutual fund. Mutual funds are not good, and they’re not bad.
A mutual fund, in fact, is merely a mirror – a reflection of something else. Thus, if you invest in a mutual fund that invests in stocks, and you are as likely to make money or lose money as any other person who invests in stocks.
In fact, you can use mutual funds to buy virtually any kind of investment: stocks, bonds, government securities, real estate, gold and other precious metals, international securities, foreign currencies, natural resources, even hedge positions and money markets. You can find funds that engage in virtually any type of trading activity, including options and futures contracts, derivatives, and even selling short.
Technically, mutual funds are called “open-end” investment companies because they forever buy and sell their shares. In industry jargon, mutual funds “sell” shares to the public, and when you want your money back, the fund will “redeem” them for you.