A Mutual Funds is an institution established with the intention of investing a pool of funds in various type of Securities for the benefit of investors. A small investor is unable to diversify his portfolio of funds simply because of high investment required for diversification, so a mutual fund provides a means of diversification of investment to small investors. Initially a mutual fund collect the funds from small investors, and when sufficient funds are gathered, then they are invested into the Securities of different types, thus diversifying the portfolio.

A mutual fund is managed by a management company. The management company is a bank of human resources, considered to be professionally qualified personnel. The portfolio of mutual fund is managed by a "Portfolio Manager", whose responsibility is to be invested in, and satisfies the desire of the investors. While selecting the securities for investment, these managers analyze economic conditions, industry trends, government regulations and their impact on the stocks, and forecasts for the specific stocks to the project the future outcome generated by the companies. As we all know that the economic and business condition do not remain constant, so these managers also revise their portfolio with the passage of time, as the circumstances demand.

The Concept of Mutual Funds:

The concept is very simple, small investors invest their money into a common pool or fund and hand over the investment decision to fund manager/ portfolio manager. This is expected to have several advantages for the small investors: no more searching for good buys or relying on the neighborhood sub-broker for advice or even waiting anxiously for the allotment. All this is taken care of by the cumulative bargaining power of the fund, which has trained professionals managing it.

Every day, the fund manager/ portfolio manager counts up the value of all fund's holding, figures out how many shares have been purchased by shareholders, and then calculates the Net Asset Value (NAV) of the mutual fund, the price of a single share of the fund on that day. If you want to buy shares, you just send the manager your money, and they will issue new shares for you at the most recent price.

If the fund manager is doing good job, the NAV of the fund will usually get bigger your shares will be worth more.