What are mutual funds?

Mutual funds are investment vehicles that pool money from multiple investors to create a diversified portfolio of various assets, such as stocks, bonds, or other securities. This pooling allows individual investors to access a broader range of investments than they might be able to individually, enhancing diversification and potentially reducing risk. By investing in a mutual fund, individuals can benefit from the expertise of professional fund managers who make decisions about the fund's investments, further aiding in the diversification strategy and management of the portfolio.

The other options do not accurately describe mutual funds. Investments that guarantee a fixed return do not reflect the nature of mutual funds, which can fluctuate in value based on market conditions. While some mutual funds may offer tax benefits under specific circumstances, this is not their primary purpose. Lastly, stocks that are traded on the stock market are a different type of investment altogether and do not describe the structure and function of mutual funds. Thus, the choice highlighting the pooling of money for diversification accurately captures the essence of what mutual funds are.