16.1 What is a mutual fund?
A mutual fund is made up when large number of investors pool their money together and invest in stocks, bonds, etc through a fund manager. You can think of a mutual fund as a company that brings together a group of people and invests their money in stocks, bonds, and other securities. Each investor owns shares, which represent a portion of the holdings of the fund. The investment proceeds are then passed along to the individual investors. The value of a share of the mutual fund, known as the net asset value per share (NAV), is calculated daily based on the total value of the fund divided by the number of shares currently issued and outstanding. The company which is registered with SEBI and does the whole process of collecting and managing funds or investments is called as a mutual fund company.
Mutual fund operation flow chart