What is 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, such as stocks, bonds, or other financial instruments. This structure allows individual investors to gain access to a professionally managed investment that offers diversification, which can reduce risk compared to investing in individual securities.

Investors in a mutual fund purchase shares, and the money collected is managed by professional fund managers who make investment decisions on behalf of the investors. This collective investment structure can provide exposure to a wide array of assets and markets, making it an attractive option for those looking to invest without having to select individual securities.

In contrast, the other options point to different financial concepts. For instance, a guaranteed return does not apply to mutual funds, as they are subject to market risks and do not assure specific returns. Additionally, a savings account typically offers fixed interest rates with lower returns and does not involve investing in the securities market. Lastly, a loan to multiple borrowers refers to a different financial arrangement entirely, unrelated to the collective investment approach of mutual funds.