What is a mutual fund?

A mutual fund is fundamentally an investment vehicle that pools money from multiple investors to collectively invest in a diversified portfolio of stocks, bonds, or other securities. This structure allows individual investors to gain access to a variety of investments that they may not be able to afford or manage on their own, thereby spreading out risk while leveraging professional management to enhance returns.

Mutual funds are designed to provide a mechanism for individual investors to participate in the financial markets without the complexities of managing individual securities directly. The pooled resources of many investors give mutual funds the size and capital necessary to invest in a broader array of assets, benefiting from economies of scale.

The other options describe different financial concepts. Investing in a single stock refers to a personal investment choice without the diversification mutual funds provide. A savings account offered by banks is a low-risk deposit account typically yielding minimal interest, rather than an investment fund. Investing solely in real estate describes a specific investment strategy, such as a real estate investment trust (REIT), which is different from the diversified approach of a mutual fund. Hence, the correct answer accurately reflects the true nature of mutual funds as investment vehicles that combine the funds of numerous investors.