In investment terminology, what is meant by "indirect investment"?

Indirect investment refers to the practice of investing in financial assets through intermediaries, rather than directly purchasing those assets. When it comes to investment in stocks or bonds via mutual funds, it means that an investor puts their money into a mutual fund, which then pools the capital from many investors to buy a diversified portfolio of stocks or bonds. This method provides several advantages: it allows individual investors to access a diversified range of investments without needing to manage each one directly, reduces risk through diversification, and often grants access to professional management.

Investing directly in personal properties, commercial properties, or government securities does not fall under the definition of indirect investment, as these options involve the investor making purchases directly rather than through a collective or pooled vehicle. In essence, choosing mutual funds represents a strategy where investors rely on the expertise of fund managers to handle their investment choices, making it a classic example of indirect investment.