A mutual fund is a financial vehicle where multiple investors pool their money. A professional manager oversees these funds, investing them in various assets such as stocks and bonds to diversify risk. Through this diversification, the goal is to avoid relying solely on the performance of a single type of investment, thus providing greater stability to the portfolio. Each investor owns a share of the fund, proportional to the amount of money they have invested. Liquidity allows for easy buying or selling of shares.