Mutual funds are nothing more than a group of stocks and/or bonds. Mutual fund companies, also known as investment companies, obtain funds from many investors by selling shares. The funds are then managed by financial professionals who purchase investment securities to benefit the shareholders.

The power of many investors allows middle income investors, or those with smaller amounts of money to invest, the ability to spread out some of the risk (financial diversification). Also, individuals with small amounts of money to invest are normally not afforded the luxury of professional management; combined investments in mutual funds allow for professional money management.