What defines a "mutual fund"?

A mutual fund is defined as an investment vehicle that pools money from multiple investors to purchase a diversified portfolio of securities. This structure allows individual investors to gain access to a diversified set of investments, which would be more challenging to achieve on their own. By combining their funds, investors benefit from economies of scale, professional management, and reduced risk through diversification.

The core of a mutual fund's functionality lies in its ability to aggregate individual investments, allowing for a broader array of asset classes—such as stocks, bonds, or other securities—compared to what a single investor might be able to achieve independently. This collective approach helps to spread risk while enabling investors to participate in a broader market than they could on their own.

This understanding of mutual funds reinforces their role as a vital component of many investors' portfolios, offering a blend of professional management and a diversified approach to investing that might not be available to individuals acting solo.