A mutual fund (MF) is a mechanism for pooling money by issuing units to investors and investing funds in securities in accordance with objectives disclosed in the offer document.
Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is diversified because all stocks may not move in the same direction, in the same proportion, and at the same time. Mutual funds issue units to investors in keeping with the quantum of money that they invest. Investors of mutual funds are known as unit-holders.
Investors, in proportion to their investments in the MF, share the profits or losses. MFs normally come out with a number of schemes, which they launch periodically, with different investment objectives. A mutual fund is required to be registered with the Securities and Exchange Board of India (SEBI) before it can collect funds from the public.