Explain the rapid rise in popularity of mutual funds.

What will be an ideal response?

The chapter covered the topic of spreading risk and one of the ways for an individual investor to spread risk is to purchase many different financial assets. The problem for any one individual is it could be expensive, both in terms of absolute dollars but also in transaction costs to purchase many different assets. Mutual funds allow individuals to pool their funds and purchase many different assets, thereby achieving most of the benefits of diversification without requiring a lot of funds to invest or high transaction costs.