What is a mutual fund?

A mutual fund is correctly identified as an investment vehicle that pools money from multiple investors to invest in a diversified portfolio of stocks, bonds, or other securities. This collective investment strategy allows individual investors to gain access to a professionally managed portfolio, which can provide a higher potential for returns compared to investments made separately.

The advantage of mutual funds lies in the diversification they offer, spreading investments across various assets to mitigate risk. Individuals purchasing shares in a mutual fund essentially own a portion of the entire portfolio, allowing them to participate in the financial markets without needing extensive knowledge or experience in individual stock picking.

In contrast, a type of savings account primarily serves as a place to hold cash and accrue interest, but does not facilitate the growth associated with investments in securities. An individual retirement account (IRA) is a specific type of account designed for retirement savings, potentially offering tax advantages, but it is not the same as a mutual fund itself. A government bond represents a loan made to a government entity, typically offering fixed interest over time, and doesn't involve pooling funds from different investors for varied investments like a mutual fund does.