Why do some people consider mutual funds a more convenient investment than stocks or bonds?

• A. Mutual funds require investors to have advanced financial knowledge.
• B. Mutual funds can only be purchased by large institutional investors.
• C. Mutual funds allow investors to diversify their holdings without having to select individual stocks or bonds.
• D. Mutual funds guarantee higher returns than stocks or bonds.

Answer: (C)

Verified step by step guidance

1. Understand the concept of mutual funds: A mutual fund pools money from many investors to purchase a diversified portfolio of stocks, bonds, or other securities.
2. Recognize the advantage of diversification: By investing in a mutual fund, an investor gains exposure to a wide range of assets, which reduces the risk compared to holding individual stocks or bonds.
3. Compare the knowledge requirement: Unlike selecting individual stocks or bonds, investing in mutual funds does not require advanced financial knowledge because the fund managers handle the selection and management of assets.
4. Consider accessibility: Mutual funds are available to individual investors with relatively small amounts of money, unlike some investments that require large capital or are limited to institutional investors.
5. Evaluate the misconception about returns: Mutual funds do not guarantee higher returns than stocks or bonds; their main convenience lies in diversification and professional management.