A mutual fund is a means by which small investors are able to participate in investments in diversified portfolios by pooling their funds. This is accomplished by contributing money into a pool of funds involving large numbers of investors, the total amount of whose contributions is large, thus making it possible for people who have small sums of money to diversify their portfolios. The money contributed by members is usually managed by investment companies that call themselves mutual funds. Periodically the fund managers distribute profits from dividends or interest payments, and from capital gains. Usually, the returns to investment in mutual funds are net of expenses incurred by the fund managers.

A bond fund is a mutual fund that invests only in bonds

An equity fund is a fund that invests only in stocks (i.e. in ownership claims)