Question

Why is investing in a mutual fund less risky than investing in a particular company’s stock?
a.Mutual funds only invest in blue-chip stocks.
b.Investments in mutual funds are more liquid.
c.Mutual funds hold a diversified portfolio of stocks.
d.Investments in mutual funds offer a higher rate of return.

Answer 1

a mutual funds only invest in blue-chip stocks

Answer 2

Answer:

c.Mutual funds hold a diversified portfolio of stocks.

Explanation:

Investing in shares of a single company can be very risky, as if that company suddenly breaks down, you could lose all of your invested assets. Ideally, invest in the stocks of several companies as this minimizes the risk of total loss of your capital. This is exactly what mutual funds do by aggregating the capital of various investors and investing it in stocks of several companies that are bullish on the financial market.