10 - What are mutual funds?

Mutual funds are investment vehicles and a way of pooling investments for people who want to invest in the same kind of product. This fund is managed by a professional fund manager and their team in an asset management company.

[Man] Hey, I have this friend who just inherited a tidy sum. Quite a lot actually, and he's not sure if he should invest it. Anyway, I told him I knew someone who knows someone.
[Woman] You inherited money? Brilliant. Now you can pay me back!
[Man] No, no, not me! A friend!
[Woman] Tell him to get a savings account and buy shares.
[Man] No. Shares are so unpredictable. You can crash at any time. My friend's really touchy about that sort of thing. Savings account? Hmm no. Any better ideas?
[Woman] Wow. Sounds like you know the guy pretty well. You must be close. Well, tell him that once he's paid off all his debts, I can tell him how mutual funds work.
[Man] Funny you should mention that, because I was actually wondering what they are!
[Woman] Well, mutual funds are investment vehicles. It's a way of pooling investments for people who want to invest in the same kind of thing. So they invest in a mutual fund that is managed by a professional fund manager and her team in an asset management company.
[Man] And what are the different types of investments?
[Woman] Funds are characterized by the type and location of the shares they invest in. For example, European equities, US corporate bonds, as well as French government bonds.
[Man] And then there's no risk!
[Woman] You can’t have performance without risk. But there is less risk than if you were to invest in the stock market and only one company whose share price can fluctuate quite dramatically. It's different with a fund. The fund manager invests in many shares, not just one, because that's his job.
[Man] So what do I need to do to invest in a fund?
[Woman] You can ask your banker to help you determine your investor profile horizon and how much risk you're willing to take. Based on these criteria, he will suggest one or more funds.
[Man] But how do I choose?
[Woman] You don't have to choose. You can invest in all the suggested funds if you like!
[Man] But I don't want to take any risks.
[Woman] But you're not the one taking any risks. Your friend is.
[Man] Right! Of course. It's not for me! It's for my friend. I don't want him to take risks.
[Woman] 5,400. That's how much you owe me.
[Man] 5,400?
[Woman] That's right. Now hand over the money!