What do mutual funds typically invest in?

Mutual funds are designed to provide investors with a diversified portfolio by pooling money from multiple investors to purchase a wide array of assets. This typically includes various types of securities, such as stocks and bonds. The diversity in investment helps reduce risk as it spreads the capital across different markets and sectors.

By investing in a combination of equities (stocks), fixed-income instruments (bonds), and sometimes other asset types such as money market instruments or real estate, mutual funds allow investors to participate in a broader investment strategy without requiring them to select individual securities themselves. This diversification is a key feature of mutual funds and helps align with different risk tolerances and investment objectives.

The other options mistakenly limit the investment scope of mutual funds. Focusing solely on government securities, a fixed set of stocks, or exclusively on international markets does not capture the full nature of what mutual funds typically do, as they can and often do invest across a wide range of asset classes. This flexibility is one of the primary reasons why mutual funds are popular among individual investors.