What is a Mutual Fund?

A mutual fund is a professionally-managed investment fund, usually run by an asset management company that pools money from many investors, or that brings together a group of people and purchase or invests their money in stocks, bonds and other securities.

Mutual fund was introduced in India in 1963, when the Government of India launched Unit Trust of India (UTI). The term is typically used in the United States, Canada, and India, while similar structures across the globe include the SICAV in Europe ('investment company with variable capital') and open-ended investment company (OEIC) in the UK.

As an investor, one can buy mutual fund 'units', which basically represent his share of holdings in a particular scheme. These units can be purchased or redeemed as needed at the fund's current net asset value (NAV). These NAVs keep fluctuating, according to the fund's holdings. So, each investor participates proportionally in the gain or loss of the fund.

All the mutual funds are registered with SEBI and function within the provisions of strict regulation created to protect the interests of the investor.

We generally know that we can invest in Mutual Funds and then take out our money whenever we want to as there is no lock-in. But this is true in the case of most mutual funds. Such mutual funds are called open-ended mutual funds.

There are some mutual funds in which we cannot invest and take out our money whenever we want. These are called close-ended mutual funds.

In the US, more than half of the population - around 60%, invests in the stock markets either directly in stocks or indirectly via mutual funds, index funds, and ETFs which is only about 3-4% in India.