How do mutual funds typically use the money from shareholders?

Mutual funds typically pool money from shareholders and invest it in a diversified portfolio of assets. This pooling of funds allows investors to access a broader range of investment opportunities than they might be able to individually afford or manage. By doing this, mutual funds aim to achieve higher returns while distributing risk across various investments.

The investments made by mutual funds can include a mix of securities such as stocks, bonds, or other financial instruments, depending on the fund's investment strategy and objectives. This diversification is a key advantage of mutual funds, as it can reduce the risk associated with investing in single securities.

The other options highlight different incorrect practices. Mutual funds do not restrict their investments to one asset class, such as bonds, nor do they convert funds into high-risk investments exclusively. Additionally, while some financial institutions may provide loans to small businesses, this is not a function typical of mutual funds, which primarily focus on collective investment strategies.