A mutual fund is a form of collective investment that pools money from many investors and invests the money in stocks, bonds, short-term money market instruments, and/or other securities. In a mutual fund, the fund manager trades the fund's underlying securities, realizing capital gains or loss, and collects the dividend or interest income. The investment proceeds are then passed along to the individual investors. The value of a share of the mutual fund, known as the net asset value (NAV), is calculated daily based on the total value of the fund divided by the number of shares purchased by investors.
Legally known as an "open-end company", a mutual fund is one of three basic types of investment companies available in the United States. Outside of the U.S. (with the exception of Canada which follows the US model), mutual fund is a generic term for various types of collective investment. In the UK and western Europe (including offshore jurisdictions), other forms of collective investment are prevalent including unit trusts, Open-Ended Investment Companies (OEICs), SICAVs and unitized insurance funds.
In Australia the term "mutual fund" is not used, the name "managed fund" is used instead.
However this term is somewhat generic as the definition of a managed fund in Australia is any vehicle where investors' money is managed by a third party (NB: usually an investment professional or organisation). Most managed funds are open-ended, however this need not be the case. Additionally the Australian government introduced a compulsory superannuation/pension scheme which although strictly speaking is a managed fund, is rarely identified by this term and called a "superannuation fund" instead due to its special tax concessions and restrictions on when the money can be accessed.
