What is a mutual fund?

A mutual fund is best defined as a pooled investment vehicle in which multiple investors contribute money to create a diversified portfolio. This structure allows individual investors to gain access to a broad array of securities, such as stocks, bonds, or other assets, without needing to purchase each security individually.

By pooling their resources, investors benefit from diversification, which helps to spread risk across various assets. This way, the performance of the mutual fund isn’t solely reliant on a single investment, reducing the potential volatility associated with individual investments. The management of these funds is typically handled by professional portfolio managers, who make decisions on behalf of the investors in line with the fund’s investment objectives.

The other options do not accurately capture the essence of what a mutual fund is. For instance, the focus on government bonds suggests a specific type of investment rather than a diversified portfolio. The mention of a type of insurance policy for retirement further deviates from the investment nature of mutual funds. Finally, direct stock investments in a single company do not represent the diversified investment strategy of mutual funds, which involves a variety of assets. Hence, the definition that describes a mutual fund as a pooled investment vehicle for diversified portfolios is the most accurate.