A mutual fund is a professionally managed financial vehicle that allows many investors to pool their money. Together, their money will be used to build a portfolio containing many different securities.

What are the potential benefits of a mutual fund?

By diversifying, investors hope to spread the risks associated with investing, because if one company in the portfolio performs badly they should only lose a small proportion of the overall amount they have invested.

Because mutual funds are operated by professional money managers, who pick which shares or bonds are included and decide the most appropriate mix of asset classes, it allows everyday people to tap into the wisdom of expert investors.

What are the different types of mutual funds?

Mutual funds can be compiled around a particular theme (to achieve maximum growth or to minimise volatility, for example) or industry (like Tech Giants).

Alternatively, a mutual fund might attempt to mimic the performance of particular index. For example, rather than relying on an investment manager to try and pick winners (which can be tricky ๏ธ๐Ÿ”ฎ), you can invest in a bundle of stocks such that's intended to mirror the performance of the Standard and Poor's (S&P) 500.

This spreads your investment across the 500 largest companies in the US, the ethos being that youโ€™re not trying to outperform the market, but merely to achieve the same returns.

If you choose to invest, then please remember that your capital is at risk. You shouldnโ€™t invest in/use any financial product unless you understand its nature and your exposure to risk. If you choose to invest or automate investments, you should be satisfied your choices are suitable for you and your circumstances.

We designed Plum to try and simplify the process of investing. Once you've decided that investing is right for you and you've selected your investments, you can use the power of automation to put your strategy into action.

If you'd like to learn more about Plum then you can check out our website.

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Remember, your capital is at risk if you choose to invest.