What is Mutual Fund?
[AdSense-A]
In order to understand this term, splitting the term and understanding the meaning of the two words separately proves to be helpful. The word ‘Mutual’ indicates an activity or feeling that is commonly shared by two or more people and the word ‘Fund’ means pooling of money. Therefore, a mutual fund is a pool of money put together by a number of investors into stocks bonds commodities or a combination of securities which is professionally managed. 
This fund is managed by a professional fund manger of Asset Management Companies or AMC’s. The job of a manager is to manage the fund and build a book which is in line with the investment objective of the scheme investments that are spread across a wide cross-section of industries and sectors. The manager thus protects and controls the risks that are involved in the investments.
[AdSense-B]
For understanding ‘Mutual funds’ in a better way, let us consider an example where an AMC has announced a new mutual fund offering. There are ten investors who decide to contribute thousand rupees each into this mutual fund. All of these investors will hold one unit of this fund and this unit will have a face value of thousand rupees. This face value is also known as the Net Asset Value or NAV.
The fund manager uses the pool of money to create portfolios based upon the type of fund selected and distributes various portions of the sponsor to invest in stocks, bonds, cash and various such portfolios. This portfolio of a mutual fund is also known as Assets Under Management or AUM.
Understanding the value of mutual fund movement
Given that the fund manager succeeds in making the right investments and after a month, the value of the portfolio has moved up by one thousand rupees, that is, it is now eleven thousand rupees. This means that each investor will gain hundred rupees each and the net asset value (NAV) of each unit will also move up to eleven hundred rupees.
Any individual can therefore invest in a mutual fund by choosing a systematic investment plan and invest lump sum, foreign, small or regular amounts.
” Mutual Fund investments are subject to market risks, read all scheme related documents carefully. ”
