Introduction

Different investment avenues are available to investors. Mutual funds also offer good investment opportunities to the investors. Here is an attempt to simplify your understanding of mutual funds

What is a Mutual Fund?
Mutual fund is a mechanism for pooling the amounts of money received from investors and investing funds in marketable securities in accordance with what they have stated. Investments in marketable securities are spread across a wide cross-section of industries and sectors. Diversification reduces the risk because all stocks may not move in the same direction in the same proportion at the same time. Mutual fund issues units to the investors in accordance with quantum of money invested by them. Investors of mutual funds are known as unitholders.

The profits or losses are shared by the investors in proportion to their investments. The mutual funds normally come out with a number of schemes with different investment objectives which are launched from time to time. A mutual fund is required to be registered with Securities and Exchange Board of India (SEBI) before it can collect funds from the public.