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What are mutual funds?

Mutual funds build wealth by pooling shareholder money to invest in a range of securities, such as stocks and bonds

Investors become shareholders in a mutual fund by buying shares in that fund. A mutual fund's share price, known as the net asset value (NAV), is determined by the total portfolio value divided by the number of shares held by shareholders.

Mutual funds are chosen based on an investor's goals, risk appetite and security preferences. For any investor, it's important to understand that mutual funds are actively managed and come with their own management costs, expense ratio and early withdrawal fees. These can vary significantly between funds.

A very popular alternative to mutual funds, which must be purchased through the fund manager, are exchange-traded funds (ETFs). ETFs usually have lower trading costs to mutual funds and are easily available to trade on the stock market through online brokers like CMC Markets.

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