The mutual fund is a mechanism for pooling money by issuing units to the investors and investing
funds in securities in accordance with objectives as disclosed in 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 at the same time.
Mutual funds issue 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 investors in proportion to their investments. Mutual funds normally come out with a number of schemes which are launched from time to time with different investment objectives. In India, A mutual fund is required to be registered with Securities and Exchange Board of India (SEBI) before it can collect funds from the public.