Certified Financial Management Specialist Practice Exam

Which term describes investment vehicles that pool money from many investors?

1. Bonds

2. Commodities

3. Stocks

4. Mutual Funds

The correct answer is: Mutual Funds

The term that describes investment vehicles that pool money from many investors is mutual funds. Mutual funds are designed to collect funds from a variety of investors, which are then pooled together and managed by professional investment managers. This pooling of resources allows investors to access a diversified portfolio of stocks, bonds, or other securities, which may not be possible for individual investors to achieve on their own. By doing so, mutual funds provide an opportunity to diversify investments and reduce risk. In comparison, bonds are debt instruments issued by companies or governments to raise funds and do not involve pooling of multiple investors' money into a single investment vehicle. Commodities refer to raw materials or primary agricultural products that can be bought and sold, rather than being an investment vehicle that pools funds. Stocks represent ownership in a company and are also traded on exchanges without pooling assets into a single entity. Therefore, mutual funds are the only option among the choices provided that specifically involves the pooling of funds from multiple investors for collective investment.