What is a mutual fund?

A mutual fund is an investment vehicle that pools money from many investors to purchase a diversified portfolio of stocks, bonds, or other securities. This collective investment approach allows individual investors to share the costs and risks associated with investing, while also gaining access to a broader range of investments than they might be able to purchase on their own. By pooling funds together, mutual funds can achieve economies of scale, enabling lower transaction costs and better diversification. This makes it an attractive option for those who may not have the expertise or capital to build a diversified portfolio independently.

The other options refer to different financial concepts: a type of retirement savings account focuses on tax-advantaged savings specifically for retirement; a direct stock purchase plan allows investors to buy stock directly from a company without using a broker; and a government-sponsored savings bond represents a loan from the investor to the government, typically offering fixed interest over time. Each of these options serves different investment purposes and strategies, whereas a mutual fund focuses specifically on collective investment.