IF INVESTING PRODUCTS were desserts, mutual funds would be the mixed berry pie. Like a pie, a mutual fund is a collection of different ingredients – in this case, investments such as stocks and bonds – held within the crust of the fund portfolio. When you buy a share of a mutual fund, you’re essentially buying a slice of that pie.
A slice of pie should have the same ratio of filling to crust as the whole pie; the same is true of mutual fund shares. When you buy a mutual fund, you’re purchasing a prorated share of all the investments that make up that mutual fund’s pie. So if the fund is 6 percent Apple (ticker: AAPL) and 3 percent Coca-Cola Co. (KO), your slice will also be 6 percent Apple and 3 percent Coca-Cola.
Also like pies, you don’t own the individual ingredients or underlying investments that make up your mutual fund slice, but rather a share of the entire pie. In other words, if you purchase a share of a fund that invests in Apple and Coca-Cola, you don’t own Apple and Coca-Cola themselves but rather a share of the fund.