The idea behind Mutual Fund is fairly simple. It is nothing but several people pooling together their money in a fund, aiming to invest in various securities. These investors would have a common financial goal.

        Each Mutual Fund has a fund manager or financial advisor, who invests the fund depending on the objective of the scheme. The investors proportionately share the returns. In other words, the dividends or interest paid on the securities by the fund holds are shared by the investors in proportion to their investment. So also, they share any capital gains or losses caused by sales of securities the fund holds.

        A Mutual Fund is considered most suitable for lay investors as it offers an uncomplicated system to invest in a variety of funds, with professional help at a relatively cheaper cost. In the complex market environs of today, a Mutual Find is a practical solution for ordinary investors for a number of reasons.

        Lay investors may not have the facilities, aptitude or time to follow the market always and make investment decisions accordingly. They also may fail to keep track of geo-political changes and decisions that may affect their investments. A Mutual Fund is ideal for such situations. The number one reason is that in Mutual Funds professionally qualified and experienced people manage various stages of investment.


        It may not be affordable for individual investors to hire such experienced people. But the large pool of money collected allows the fund to employ quailed people at a cost negligible to each investor. Mutual Funds gained popularity only after the World War II. Globally, there are thousands of firms offering tens of thousands of mutual funds with different investment objectives. To launch a Mutual Fund, a draft offer document is to be prepared. It would specify the fund’s investment objectives, the risk associated, the costs involved in the process and the broad rules for entry and exit from the fund and other areas of operation.


        In India, as in most countries, these sponsors need approval from a regulator. The Securities Exchange Board of India (SEBI) is the regulatory body in India. The SEBI would examine the track records of the sponsor and its financial strength before granting approval to the fund’s operations.Once the approval is gained, the sponsor hires an asset management company to invest the funds according to the investment objective. It also hires another entity to function as the custodian of the fund’s assets, and perhaps a third one to handle the registry work for the unit holders.