“Mutual Funds provide stability to share prices, safety to investors and resources to prospective entrepreneurs.” Explain?

Answer 1

Let's start with the second, since it's the most direct answer.

Mutual Funds are, as the name implies, a pool of resources from many investors. Because the Mutual Fund is working with money from many investors, none of the individuals who are invested in it carry all of the risk. Both gains and losses are spread among many investors, so the individual faces much less risk than if they were purchasing and selling assets individually. Furthermore, because the Mutual Fund has significantly more resources than a typical individual, they can afford to diversify into a greater number of investments, which makes it less likely that any single loss will dramatically affect the overall portfolio.

And that brings us back to the first point: stability to share prices. A Mutual Fund, by its nature, is seeking sustained growth over time. Because they are so diversified, they are fairly insulated against the day-to-day changes that might affect individual investors. They are less prone to panic buys or sells, and more likely make choices that will keep their portfolio stable over time. Considering that they wield significant resources, any behavior that mutual funds undertake is likely to impact the overall market.

The third point is, somewhat obviously, that they invest money. Now, simply because mutual funds prefer stable markets does not mean that they never take risks. The nature of diversification means that some of the money that they invest will be in high-risk high-reward investment vehicles, like startups. Of course, they have safer investments to cover those potential losses, which allows them to do this without significantly risking the individual investors' money.