Definition of: mutual fund

An investment company which provides diversification and professional management for the pooled capital of the investors, paying out to its shareholders as mutual owners virtually all earnings including realized capital gains except for management fees and administrative costs, thus remaining tax free in its own operations. The shares of an open-end mutual fund are redeemable at the option of the stockholder at the net asset value of the portfolio calculated daily, and its shares are generally sold continually with a distribution charge on purchase. The shares are not listed on the stock exchange. A closed-end mutual fund has fixed capitalization, the shares not being offered or redeemable.