Which investment fund structure allows for pooling money from multiple investors?

Mutual funds are designed specifically to pool money from a variety of investors, enabling them to invest collectively in a diversified portfolio of securities such as stocks, bonds, or other assets. This structure allows individual investors, who may not have sufficient capital to invest in these securities on their own, to benefit from the expertise of professional fund managers and to achieve diversification with relatively low investment amounts.

The pooling of resources in mutual funds provides advantages such as economies of scale, which can lower transaction costs and fees for investors. Furthermore, mutual funds are typically structured to offer shares that can be easily bought and sold, facilitating liquidity for investors.

In contrast, hedge funds, while also allowing for pooled investments, generally cater to accredited or institutional investors and often utilize complex strategies that may involve higher risk. Exchange-traded funds (ETFs) also pool money from multiple investors, but they are traded on exchanges like stocks, which gives them a different liquidity profile and investment mechanics compared to mutual funds. Direct investments involve individuals investing directly in a specific asset or venture without pooling resources, making them fundamentally different from mutual funds.