What is a mutual fund?

A mutual fund is best defined as a pooled investment vehicle that collects money from many investors to invest in a diversified portfolio of assets, such as stocks, bonds, or other securities. This structure allows individual investors to gain access to a broader range of investments than they might be able to achieve on their own, benefiting from professional management and diversification.

By pooling their resources, investors can share in the returns of a wider array of investments, thus reducing their overall risk compared to purchasing individual assets. Furthermore, mutual funds are managed by professionals who make investment decisions based on the fund's objectives, providing a level of expertise and research that many individual investors may not have access to.

This option highlights the key characteristics of mutual funds, emphasizing the collective nature of the investment and the benefits derived from pooling capital. Understanding this structure is crucial for anyone looking to invest in mutual funds, as it forms the basis for the way these investment vehicles operate in the market.