Among the many benefits of mutual funds & ETFs are the opportunities to reduce risk through diversification, increased liquidity, & in many cases, a degree of flexibility associated with the ability to switch investments within a fund family.

Mutual funds & ETFs fall into several main categories. Some are bond funds (also called fixed income funds), & some are stock funds (also called equity funds). There are also funds that invest in a combination of these categories, such as balanced funds & target date funds, & newer types of funds such as alternative funds, smart-beta funds & esoteric ETFs. In addition, there are money market funds, which are a specific type of mutual fund.

Of course, mutual funds & ETFs do fluctuate with market conditions & when redeemed, may be worth more or less than your original investment as well as carry various degrees of risks depending on the individual fund's objectives.