Which statement describes a mutual fund?

• A. A single stock.
• B. A savings account.
• C. An insurance policy.
• D. A collection of stocks and/or bonds combined into one fund.

Answer: (D)

A mutual fund is a vehicle that pools money from many investors to buy a diversified portfolio of stocks and/or bonds, managed by professionals. This setup gives investors access to a mix of securities they might not be able to purchase on their own, with the fund’s managers making investment choices and handling the day-to-day decisions. The value you own comes from shares of the fund, not from owning the individual securities directly, and the fund’s price is based on the collective value of its holdings (the net asset value) at the end of each trading day. The other options aren’t mutual funds: a single stock represents ownership of one company’s security; a savings account is cash deposited at a bank; and an insurance policy is a contract for protection or savings that isn’t a pooled investment fund.