The easiest way to explain a mutual fund is in terms of a burrito. Say you order a spicy chicken burrito. You’ve got a warm and soft tortilla wrapped around chunks of chicken, piles of rice and beans, slices of jalapeno, globs of guacamole, and a drizzle of sour cream. Maybe cheese and salsa are scattered throughout for good measure. De-lish.
Well, a mutual fund is made in a similar way.
Imagine the chicken, beans, and everything else are all stocks, bonds, and other securities. The cook is like a portfolio manager who wraps all the ingredients in a cozy tortilla blanket, ala the fund. With every bite you get a little bit of every ingredient … just like a share of a mutual fund.