What is the primary purpose of a mutual fund?

The primary purpose of a mutual fund is to pool savings from multiple investors and use that collective capital to invest in a diversified portfolio of assets. This method allows individual investors to gain exposure to a larger and more varied selection of investments than they might be able to achieve on their own. By pooling resources, mutual funds can also benefit from economies of scale, which can lower transaction costs and provide more professional management than an individual investor might be able to access.

Mutual funds are designed to give investors the opportunity to invest in a wide range of securities—such as stocks, bonds, and money market instruments—while spreading their risk among different assets. This diversification helps to mitigate the impact of poor performance by any single investment. Furthermore, mutual funds are managed by professional portfolio managers who make investment decisions on behalf of the investors, adding a layer of expertise and strategy to the investing process.

In contrast, the other choices do not align with the core function of mutual funds. Providing loans to individuals is typically the role of banks and credit institutions, while offering direct stock purchase options relates to investment strategies that individual investors may pursue on their own. Providing insurance options pertains to risk management rather than investment growth, which is the focus of mutual funds.