A mutual fund is an investment vehicle that pools money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other securities. It is managed by a professional fund manager or management team, who make decisions on behalf of the investors based on the fund's investment objectives.

Here's how mutual funds work:

1. Pooling of Funds: When you invest in a mutual fund, your money is combined with investments from other individuals and institutional investors. This pool of money allows the fund to invest in a wide range of assets, which provides diversification and reduces individual risk.
2. Professional Management: The mutual fund is managed by a professional fund manager or a team of managers. They analyze the market, research potential investment opportunities, and make decisions on what securities to buy, hold, or sell within the fund.
3. Diversification: Mutual funds invest in a variety of securities, which can include stocks, bonds, money market instruments, or a combination of these. This diversification helps spread the risk across different assets and industries, potentially reducing the impact of losses from any individual security.
4. Net Asset Value (NAV): The value of a mutual fund is calculated based on the total value of all the assets held by the fund, minus any liabilities, divided by the number of outstanding shares. The resulting value is called the Net Asset Value (NAV) per share, which represents the price at which investors can buy or sell shares of the mutual fund.
5. Investment Objectives: Each mutual fund has specific investment objectives, which can range from aggressive growth to conservative income generation. Investors can choose funds that align with their financial goals and risk tolerance.