What is Mutual Fund?

A mutual fund is a professionally Managed financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. The money collected from the investors is used to buy and trade in those assets, which are specifically permitted by its stated investment objective.Thus a growth fund would buy mainly equity assets while an income fund would mainly buy debt instruments.

The investors own the funds assets in the same proportion as their contribution bears to the total contributions of all investors put together.

The value of a share of the mutual fund, known as the net asset value (NAV), is calculated daily based on the total value of the fund divided by the number of shares currently issued and outstanding.Mutual funds are one of the best investments ever created because they are very cost efficient and very easy to invest in (you don't have to figure out which stocks or bonds to buy). By pooling money together in a mutual fund, investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own. But the biggest advantage to mutual funds is diversification.