There are many reasons to buy a mutual fund. While there are a plethora of investment options (individual stocks, ETFs and close-end funds, to name a few) a mutual fund can offer a simple, efficient way to invest for retirement, education or other financial goals.

When you buy a mutual fund, you're actually buying an ownership stake in a corporation that in turn hires a money manager to invest its money. Buying a mutual fund is a lot like going in on a group gift or joining a co-op with people you'll never meet. Mutual funds allow a group of investors to combine their cash and invest it. By pooling their money together, mutual fund investors can sample a broader range of stocks or bonds than they could if they were trying to buy the stocks and bonds on their own.

Mutual funds not only differ in their financial objectives, but they also invest in different kinds of securities that reflect the ultimate objective of the fund. Depending on the securities the fund is investing in, or the mix of securities chosen for a specific fund, the element of risk varies substantially.