What is a mutual fund? How it works and how it differs from an ETF

A mutual fund collects money from many investors and invests it in a basket of assets such as stocks, bonds or money market instruments, following a stated strategy. Each investor owns units that represent a share of the whole portfolio.

This gives small investors instant diversification and professional management without picking each asset themselves.

The fund calculates its net asset value, or NAV, usually once a day. It is the value of all holdings minus costs, divided by the number of units. Orders are filled at that price, not at a price that moves during the day.

NAV per unit = (assets − liabilities) ÷ units outstanding

Funds may be managed actively, trying to beat a benchmark, or passively, tracking an index. Active funds usually charge higher fees.

An ETF is also a pooled fund, but its shares trade on an exchange throughout the day at changing prices, like a stock. A mutual fund trades once a day at NAV, directly with the fund or through a platform or bank.

ETFs usually track an index and often have lower fees, while mutual funds include many actively managed strategies. In Turkey, yatırım fonları are bought and sold through banks, brokers and fund platforms.

A fund can lose value, and its risk depends on what it holds. Fees, such as the management fee, reduce returns every year whatever the result.

A common mistake is choosing a fund only because of last year's return. Check the strategy, the fees, the risk level and the fund's official documents before investing.