A mutual fund consolidates the monies of many investors and purchases large blocks of stocks, bonds, securities, foreign currency etc as delineated by established guidelines.  Because of the large amounts of money involved, mutual funds can buy securities, etc in very large blocks thus ensuring low brokerage commissions.

 

A mutual fund is governed by a group of directors elected by the shareholders much as a board of directors is elected by a firm's shareholders.  These directors, headed by a fund manager, are responsible for selecting stocks, bonds etc to purchase and when to sell assets held by the fund.

 

By law a mutual fund must distribute 98% of capital gains, dividends etc or risk taxation.  These monies are distributed to the investors less expenses on a per share basis.