What is a mutual fund?

A mutual fund is an investment vehicle that pools funds from multiple investors to purchase a diversified portfolio of stocks, bonds, or other securities. This collective investment approach allows individuals to invest in a diversified assortment of assets without having to select them individually, which can reduce risk and provide a more stable return over time. By participating in a mutual fund, investors benefit from the expertise of professional fund managers who make investment decisions on their behalf, ensuring the portfolio aligns with specific investment goals.

The other options involve different financial instruments or accounts. A bank account that earns interest does not involve investment in securities but rather focuses on interest accumulation, which is quite different from the risk and potential returns associated with mutual funds. A loan for purchasing stocks refers to margin trading, which carries additional risks and obligations compared to mutual funds. Lastly, trading stocks individually emphasizes direct control over specific stocks rather than the diversified and managed approach that mutual funds provide.