A mutual fund is an open-end investment company that invests its shareholders' money in a usually diversified group of securities of other companies, as defined in the Merriam-Webster dictionary. Mutual funds help with financing and investment opportunities. They give small investors the ability to invest their money in other sectors besides stocks and bonds. There are several mutual funds to choose from and several reasons why shareholders should choose them. As popular as mutual funds have become, they have drawbacks like most investment opportunities. In 2003, mutual funds were giving mutual funds a bad name when a scandal was made public. These opportunities and issues will be discussed. Becoming the major providers of funds in the financial market, mutual funds have become a very popular investment in recent years. Because of the diversity of investments, portfolio management expertise, and liquidity, mutual funds have grown rapidly in recent years. One of the most popular groups investing in mutual funds are people with self-directed retirement plans. This provides professionally managed money and shared risk. There are more than 8,000 different mutual funds, with more than 88 million households owning shares of one or more mutual funds. Mutual funds pool investments from individual investors and use the funds to meet the financing needs of governments and corporations in primary markets. Investments in securities on secondary markets are also made. Mutual funds are used by both governments and companies that need financing, which gives small investors a place to invest their money. Small investors have limited funds to invest, so mutual funds provide them with an easier way to diversify their investments. Mutual funds pay higher dividends than money markets or savings accounts, and dividends are paid faster with mutual funds than with individual bonds. Small investors can't afford to diversify with such small sums of money, so mutual funds allow them to invest in holdings of 50 or more stocks. Minimum investments for some of these stocks can range from as little as $250 to $2,500. Mutual funds are a very low-risk investment, but they still carry credit and interest rate risks. Since the investments are spread across a number of bonds, the risk is reduced, especially if you invested everything in a single bond. Mutual funds are also more liquid than regular bonds; they can be bought and sold more easily. Mutual funds are also managed by experienced portfolio managers, so investors don't have to worry about managing the portfolio themselves.