When you invest in a mutual fund, you are contributing to a pool of money that will be:

• A. invested in a diversified portfolio of securities by a professional manager
• B. used exclusively to purchase shares of a single company
• C. loaned directly to other investors
• D. held in cash until you request a withdrawal

Answer: (A)

Verified step by step guidance

1. Understand the concept of a mutual fund: A mutual fund is an investment vehicle that pools money from multiple investors to invest in a diversified portfolio of securities, such as stocks, bonds, and other assets.
2. Recognize the role of a professional manager: Mutual funds are managed by professional fund managers who make investment decisions on behalf of the investors to achieve the fund's objectives.
3. Eliminate incorrect options: Review the provided choices and identify which ones do not align with the definition of a mutual fund. For example, mutual funds are not used exclusively to purchase shares of a single company, nor are they loaned directly to other investors or held in cash indefinitely.
4. Focus on diversification: Mutual funds are designed to reduce risk by investing in a variety of securities, which is a key feature of their structure.
5. Select the correct answer: Based on the explanation, the correct answer is that mutual funds are 'invested in a diversified portfolio of securities by a professional manager.'