What is a mutual fund?

A mutual fund is an investment security that pools money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other securities. This collective investment approach allows individuals to access a broader range of asset classes than they might be able to on their own, enabling them to benefit from professional management and diversification. Investors purchase shares in the mutual fund, and the money is managed by a fund manager who allocates it according to the specific investment objectives of the fund.

The characteristics of mutual funds make them popular among individual investors who may not have the time or expertise to manage their own investment portfolios. They also come with various investment strategies, including growth, income, or balanced approaches, offering investors different risk-reward profiles based on their financial goals.

In contrast, the other options provided do not accurately describe what a mutual fund is. Managing real estate investments refers to a different investment strategy not typically associated with mutual funds. The notion of a type of stock that can only be purchased at a premium does not accurately reflect the nature of mutual funds, which have specific pricing mechanisms based on net asset value (NAV). Finally, while some mutual funds may invest in commodities through specific commodity-based funds, not all mutual funds do; their primary purpose is broader, covering