Mutual Fund Basics

Diversification helps protect the value of your overall portfolio against a serious downturn in a single security or market sector. The catch is that achieving a diversified portfolio can be expensive and time-consuming if you purchase investments individually. Investing in a mutual fund can help make the process easier and less expensive.

When you buy shares in a mutual fund, the fund's managers pool your assets with other investors' and use the cash to make large investments in a range of securities. Because the managers decide which securities to buy and when to make trades, you don't have to. And, because mutual funds make a wide range of investments, you can indirectly own dozens of securities at a fraction of the cost of purchasing them outright.

As with any investment, the costs and risks associated with mutual funds vary depending on the type of fund in which you're invested. The more information you're armed with, the better prepared you are to make informed investment decisions.

Diversification does not assure a profit, or protect against loss, in a down market.

Investors should consider the investment objectives, risks, charges, and expenses of a mutual fund carefully before investing. A prospectus contains this and other information. A mutual fund prospectus is available through or through a Scottrade branch office. The prospectus should be read carefully before investing.