What is a mutual fund?

A mutual fund is best defined as an investment vehicle pooling money from investors. This structure allows multiple investors to combine their resources to purchase a diversified portfolio of stocks, bonds, or other securities, which can provide greater diversification and professional management compared to individual investing.

Investors buy shares in the mutual fund, and the pooled funds are managed by professional asset managers who make investment decisions aimed at achieving specific financial goals. This collective approach enables smaller investors to access a professionally managed portfolio and reduces the risk that comes with individual stock selection.

In contrast, the other options do not accurately define a mutual fund. Stocks are individual securities that represent ownership in a company and do not inherently involve pooled investment. Direct stock purchase methods refer to individual stocks rather than pooled investments, and a bank savings account is a different financial product focused on savings rather than investment in securities. These distinctions highlight why the correct choice emphasizes the aggregation of resources for investment purposes.