The idea behind a mutual fund is simple: many people pooling their money into a fund gives the fund manager more options in which to invest, with the intent of producing greater returned income than would be possible as an individual investor. Because each investor proportionately shares in the investment return, and associated costs, the overall risk to the individual investor is lessened.

A mutual fund's return is affected by the income (dividends and interest) generated from the securities held in the mutual fund. Depending on the mutual fund's particular objective, the fund manager may invest in types of stocks, bonds, cash investments and most often invests in a combination of these financial assets.