ETFs and indices · updated October 21, 2026
What is a mutual fund and how does it work
A mutual fund pools money from many investors and invests it in stocks, bonds or deposits, following a stated strategy. You buy and sell units directly from the fund manager (or through a bank), once a day, at the net asset value.
How it works
You put money in and get fund units at that day's value (NAV). The manager decides what to buy, within the limits of the strategy in the prospectus. When you want your money back, you ask to redeem your units and get their value on that day, usually within a few business days. In the EU, mutual funds are authorised and supervised by the national financial regulator, and the fund's money is held at a custodian bank, separate from the manager's own money.
Worked example
You invest $5,000 in an equity fund with a unit price of $25 and a yearly management fee of 2%.
If the unit reaches $28, your 200 units are worth $5,600. The fee has already been taken out of the unit price.
Worth knowing
The difference from an ETF: a mutual fund does not trade on an exchange, it is bought once a day and usually costs more, especially actively managed funds. The upside: you can invest small amounts monthly, straight from your bank's app.
When a mutual fund can fool you
Costs hidden in the price: you do not pay the yearly fee separately, but it is taken out of the unit price every day; a 2-3% yearly fee eats a lot of the return. Entry and exit fees: some funds charge them, especially if you withdraw in the first year.
Related terms
Learn it in the Academy
Questions about a mutual fund
Mutual fund or ETF?
An index ETF usually costs much less. A mutual fund is simpler if you want to put in small amounts monthly from your bank's app, without a brokerage account.
Is my money safe if the fund manager goes bust?
The fund's assets are held at the custodian bank, separate from the manager's money. The risk that remains is market risk: your investments can lose value.
These explanations are for information only. They are not a recommendation to buy or sell.
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