What is a mutual fund?

A mutual fund is defined as an investment vehicle that pools money from multiple investors to purchase securities. This collective approach allows individuals to invest in a diversified portfolio of stocks, bonds, or other assets, which they might not be able to afford or manage on their own. By pooling funds, mutual funds provide access to professional management and a broader range of investment options, helping to spread risk and increase potential for returns. This concept is fundamental to understanding how investors can benefit from collaborative investing strategies.

The other choices do not accurately represent what a mutual fund is. A savings account, for instance, is a bank account where individuals keep their money with the expectation of earning interest, which differs significantly from the investment growth seen in a mutual fund. A loan taken out specifically for housing is a mortgage, which is unrelated to investing in securities. Lastly, an insurance policy focused on investment growth refers to products like variable life insurance, which also does not align with the structure and purpose of mutual funds.