What is a mutual fund?

A mutual fund is an investment vehicle that consolidates money from numerous investors to create a pooled fund, which is then used to purchase a diversified portfolio of securities, such as stocks, bonds, or other assets. This structure allows individual investors to access a broader range of investments than they may be able to purchase on their own while also benefiting from professional management of the fund's assets.

One of the key advantages of mutual funds is diversification; by pooling resources, the fund can invest in a variety of securities, which helps to spread risk. Additionally, mutual funds are managed by financial professionals who research and select the securities included in the portfolio, providing investors with expertise and potentially more informed investment decisions.

The other options do not accurately describe mutual funds. An individual security issued by a corporation refers to shares or bonds that are specific to that company, which is different from the collective investment nature of mutual funds. A type of savings account offered by banks only typically provides interest earnings, lacking the investment diversification and risk management features of mutual funds. Similarly, a government-sponsored investment scheme would imply a specific program or initiative organized by Government entities, whereas mutual funds are privately offered investment products managed by asset management companies.