What is a mutual fund?

A mutual fund is best described as a professionally managed, diversified investment that pools resources from many investors. This structure allows individuals to collectively invest in a wide range of assets, such as stocks, bonds, or other securities, which is managed by financial professionals.

The diversification inherent in mutual funds helps mitigate risk, as the performance of any single security will have less impact on the overall fund's performance. This collective approach is beneficial for individual investors who may not have the expertise or capital to manage a diversified portfolio on their own.

In contrast, investing in a single company does not provide the broad exposure that a mutual fund offers, and a traditional savings account serves a very different purpose, primarily focusing on capital preservation rather than investment growth. A type of cryptocurrency is unrelated to mutual funds, as cryptocurrencies are digital assets that operate on blockchain technology, often characterized by high volatility and a lack of institutional management.