What type of investment is a mutual fund?

A mutual fund is categorized as a pooled investment from multiple investors. This means that a mutual fund collects money from various individuals and then invests that combined capital in a diversified portfolio of securities, such as stocks, bonds, or other assets. The purpose of this pooling is to achieve broader market exposure and reduce individual risk through diversification. Investors in a mutual fund buy shares in the fund, and the value of their investment fluctuates based on the performance of the underlying assets.

The structure of mutual funds allows investors who may not have the expertise or resources to create their own diversified investment portfolio to participate in a managed investment vehicle. This is a significant advantage, as professional fund managers typically oversee the investment decisions, aiming to achieve the best possible returns for the investors.

Other investment types mentioned, such as a single stock, represent ownership in one specific company and come with higher risk due to lack of diversification. Individual bonds concern loans made to entities that pay interest over time, and guaranteed investment products often come with stipulations and limited growth potential.