It is an investment company that pools money from its unit holders and invests that money into a variety of securities, including stocks, bonds, and money-market instruments. This represents a way of investing money into a professionally managed and diversified pool of securities that hopefully will provide a good return on unit holders’ money.
The primary role of mutual funds is to assist investors in earning an income or building their wealth, by participating in the opportunities available in the securities markets.
Mutual funds address differential expectations between investors within a scheme, by offering various options, such as dividend payout option, dividend re-investment option and growth option. An investor buying into a scheme gets to select the preferred option also.
The investment that an investor makes in a scheme is translated into a certain number of ‘Units’ in the scheme. The number of units multiplied by its face value is the capital of the scheme – its Unit Capital.