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Which of the following is a pool of investments that gives its investors the benefit of economies of scale even with small investments?(1.0 Marks)A Mutual FundAA Ponzi SchemeBA Bank DepositCAn Equity Share

Question

Which of the following is a pool of investments that gives its investors the benefit of economies of scale even with small investments?(1.0 Marks)A Mutual FundAA Ponzi SchemeBA Bank DepositCAn Equity Share

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Solution

The correct answer is A Mutual Fund.

A mutual fund is a type of financial vehicle made up of a pool of money collected from many investors to invest in securities like stocks, bonds, money market instruments, and other assets. Mutual funds are operated by professional money managers, who allocate the fund's assets and attempt to produce capital gains or income for the fund's investors.

This allows investors to benefit from economies of scale, which are cost advantages that companies obtain due to size, output, or scale of operation, with cost per unit of output generally decreasing with increasing scale as fixed costs are spread out over more units of output.

Even with small investments, individuals can access a diversified portfolio of equities, bonds, and other securities. Each shareholder participates proportionally in the gain or loss of the fund.

On the other hand, a Ponzi Scheme is a fraudulent investing scam promising high rates of return with little risk to investors. A Bank Deposit is just a deposit of money into a bank account. An Equity Share represents ownership in a company and entitles the shareholder to a part of the company's profits and assets.

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