1. What is a Mutual Fund?

A mutual fund is an investment vehicle which pools together investor's money generally to purchase stocks and bonds. Investors participate in the mutual fund by purchasing shares of the entire pool of assets, thus diversifying their investment.

The pooled assets are invested by professional managers who buy and sell securities on behalf of the investors. The activity of investing and managing the portfolio is quite onerous, and hence delegated to a Asset Management Company (AMC) for a fee.

Since the Mutual Fund beneficiaries (or Unitholders, as they are more commonly called) may have their own pre-occupation, they also entrust the job of keeping an eye on the AMC to a set of Trustees.

Mutual Funds is a very large business activity world-wide and in India, SEBI regulates this industry for the protection of investors. SEBI has laid down that a Mutual Fund, the Trustees and the AMC should be three distinct entities. It also mandates that the Custody of the Portfolio should not be with the AMC but with a Custodian, specifically approved by SEBI.