A definition from investopedia.

com
A mutual fund is nothing more than a collection of stocks and/or bonds. 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.

A definition from economywatch.com

Mutual Funds Definition refers to the meaning of Mutual Fund, which is a fund, managed by
an investment company with the financial objective of generating high Rate of Returns. These
asset management or investment management companies collects money from the investors and
invests those money in different Stocks, Bonds and other financial securities in a diversified
manner. Before investing they carry out thorough research and detailed analysis on the market
conditions and market trends of stock and bond prices. These things help the fund mangers to
speculate properly in the right direction.
The investors, who invest their money in the Mutual fund of any Investment Management
Company, receive an Equity Position in that particular mutual fund. When after certain period of
time, whether long term or short term, the investors sell the Shares of the Mutual Fund, they
receive the return according to the market conditions.

The investment companies receive profit by allocating people's money in different stocks and
bonds according to their Speculation about the Market Trend.

Other than some specific mutual funds which carry certain Maturity Term, Investors can
generally sell the shares of their mutual funds at any time they want. But, the return will vary
according to market value of the stocks and bonds in which that particular mutual fund made
investment. But, generally the share holders of mutual fund sell their share when the prices are
up and Capital Gain is sure to happen.
According to ABL Asset Management a mutual fund is an entity that pools the money of
many investors and then invests them in different securities. Investments may be in shares, debt
securities, money market securities or a combination of these. On behalf of the investors / unit-holders,
these securities are professionally managed by a fund manager, working effectively to generate a return
from investments.
Why a Mutual Funds Investment is Lucrative from an Investor’s point of
view

• Professional Management

 Mutual funds hire full-time, high-level investment professionals. Funds can afford to do
so as they manage large pools of money. The managers have real-time access to crucial
market information and are able to execute trades on the largest and most cost-effective
scale.

• Diversification

 Mutual funds invest in a broad range of securities. This limits investment risk by
reducing the effect of a possible decline in the value of any one security. Mutual fund
unit-holders can benefit from diversification techniques usually available only to
investors wealthy enough to buy significant positions in a wide variety of securities.

• Low Costs

 A mutual fund let's you participate in a diversified portfolio for as little as Rs.5,000/-, and
sometimes less. And with a no-load fund, you pay little or no sales charges to own them.

Liquidity

 In open-ended schemes, you can get your money back promptly at net asset value related
prices from the mutual fund itself

• Choice of schemes
There are many schemes to choose from depending on the amount of risk you can take,
or the return you expect.
Disadvantages of Mutual Funds
• Professional Management - Many investors debate whether or not the professionals are any better
than you or I at picking stocks. Management is by no means infallible, and, even if the fund loses money,
the manager still gets paid.

• Costs - Creating, distributing, and running a mutual fund is an expensive proposition. Everything from
the manager’s salary to the investors’ statements cost money. Those expenses are passed on to the
investors. Since fees vary widely from fund to fund, failing to pay attention to the fees can have negative
long-term consequences. Remember, every dollar spend on fees is a dollar that has no opportunity to
grow over time.

• Dilution - It's possible to have too much diversification. Because funds have small holdings in so many
different companies, high returns from a few investments often don't make much difference on the
overall return. Dilution is also the result of a successful fund getting too big. When money pours into
funds that have had strong success, the manager often has trouble finding a good investment for all the
new money.

• Taxes - When a fund manager sells a security, a capital-gains tax is triggered. Investors who are
concerned about the impact of taxes need to keep those concerns in mind when investing in mutual
funds. Taxes can be mitigated by investing in tax-sensitive funds or by holding non-tax sensitive mutual
fund in a tax-deferred account.

What to Know Before You Shop

Net asset value (NAV), which is a fund's assets minus liabilities, is the value of a mutual fund. NAV per
share is the value of one share in the mutual fund, and it is the number that is quoted in newspapers.
You can basically just think of NAV per share as the price of a mutual fund. It fluctuates everyday as fund
holdings and shares outstanding change.

When you buy shares, you pay the current NAV per share plus any sales front-end load. When you sell
your shares, the fund will pay you NAV less any back-end load.

Finding Funds
Nearly every fund company in the country also has its own website. Simply type the name of the fund or
fund company that you wish to learn more about into a search engine and hit “search.” If you don’t have
a specific fund company already in mind, you can run a search for terms like “no-load small cap fund” or
large-cap value fund.”

For a more organized search, there are a variety of other resources available online. Two notable ones
include: The Mutual Fund Education Alliance is the not-for-profit trade association of the no-load mutual
fund industry. They have a tool for searching for no-load funds.

Morningstar is an investment research firm that is particularly well known for its fund information.
 
Identifying Goals and Risk Tolerance
Before acquiring shares in any fund, you need to think about why you are investing. What is your goal?
Are long-term capital gains desired, or is a current income preferred? Will the money be used to pay for
college expenses, or to supplement a retirement that is decades away? Identifying a goal is important
because it will help you hone in on the right fund for the task.

For really short-term goals, money market funds may be the right choice, For goals that are few years in
the future, bond funds may be appropriate. For long-term goals, stocks funds may be the way to go.

Of course, you must also consider the issue of risk tolerance. Can you afford and accept dramatic swings
in portfolio value? If so, you may prefer stock funds over bond funds. Or is a more conservative
investment warranted? In that case, bond funds may be the way to go.

The next question to consider include “are you more concerned about trying to outperform your fund’s
benchmark index or are you more concerned about the cost of your investments?” If the answer is
“cost,” index funds are likely the right choice for you.

Additional questions, to consider include how much money you have to invest, whether you should
invest in a lump sum or a little bit over time and whether taxes are a concern for you.
Types of Mutual Funds
Mutual funds can be classified into two broad categories,

Open-Ended Mutual Funds

A type of mutual fund that does not have restrictions on the amount of shares the fund will issue. If
demand is high enough, the fund will continue to issue shares no matter how many investors there are.
Open-end funds also buy back shares when investors wish to sell. A fund operated by an investment
company which raises money from shareholders and invests in a group of assets, in accordance with a
stated set of objectives. Open-end funds raise money by selling shares of the fund to the public, much
like any other type of company which can sell stock in itself to the public. Mutual funds then take the
money they receive from the sale of their shares (along with any money made from previous
investments) and use it to purchase various investment vehicles, such as stocks, bonds and money
market instruments. In return for the money they give to the fund when purchasing shares,
shareholders receive an equity position in the fund and, in effect, in each of its underlying securities. For
most open-end funds, shareholders are free to sell their shares at any time, although the price of a share
in an open-end fund will fluctuate daily, depending upon the performance of the securities held by the
fund. Benefits of open-end funds include diversification and professional money management. Open-
end funds offer choice, liquidity, and convenience, but charge fees and often require a minimum
investment.

The majority of mutual funds are open-end. By continuously selling and buying back fund shares, these
funds provide investors with a very useful and convenient investing vehicle.
It should be noted that when a fund's investment manager(s) determine that a fund's total assets have
become too large to effectively execute its stated objective, the fund will be closed to new investors and
in extreme cases, be closed to new investment by existing fund investors.

The fund does not have a fixed pool of money. At the end the day new units are issued to the investors,
while some are redeemed back.
Closed-End Funds: These types of fund have a fixed pool of money which was collected during the initial
public offer. An investor wishing to buy or sell units subsequent to the IPO has to go to the secondary
market.

Trading in

Closed- Stock exchange

End Fund

Profits
A closed-end fund is a publicly traded investment company that raises a fixed amount of capital
through an initial public offering (IPO). The fund is then structured, listed and traded like a stock
on a stock exchange.

Also known as a "closed-end investment" or "closed-end mutual fund."

According to investopedia.com, despite the name similarities, a closed-end fund has little

in common with a conventional mutual fund, which is technically known as an open-end fund.

The former raises a prescribed amount of capital only once through an IPO by issuing a fixed

amount of shares, which are purchased by investors in the closed-end fund as stock. Unlike
regular stocks, closed-end fund stock represents an interest in a specialized portfolio of securities
that is actively managed by an investment advisor and which typically concentrates on a specific
industry, geographic market, or sector. The stock prices of a closed-end fund fluctuate according
to market forces (supply and demand) as well as the changing values of the securities in

Investorword.com explains close ended fund as a fund with a fixed number of shares outstanding, and
one which does not redeem shares the way a typical mutual fund does. Closed-end funds behave more
like stock than open-end funds: closed-end funds issue a fixed number of shares to the public in an initial
public offering, after which time shares in the fund are bought and sold on a stock exchange, and they
are not obligated to issue new shares or redeem outstanding shares as open-end funds are. The price of
a share in a closed-end fund is determined entirely by market demand, so shares can either trade below
their net asset value ("at a discount") or above it ("at a premium").

According to wikipedia.org a closed-end fund, or closed-ended fund is a collective

investment scheme with a limited number of shares.

New shares are rarely issued after the fund is launched; shares are not normally redeemable for
cash or securities until the fund liquidates. Typically an investor can acquire shares in a closed-
end fund by buying shares on a secondary market from a broker, market maker, or other investor
as opposed to an open-end fund where all transactions eventually involve the fund company
creating new shares on the fly (in exchange for either cash or securities) or redeeming shares (for
cash or securities).

The price of a share in a closed-end fund is determined partially by the value of the investments
in the fund, and partially by the premium (or discount) placed on it by the market. The total value
of all the securities in the fund divided by the number of shares in the fund is called the net asset
value (NAV) per share. The market price of a fund share is often higher or lower than the per
share NAV: when the fund's share price is higher than per share NAV it is said to be selling at a
premium; when it is lower, at a discount to the per share NAV.

In the U.S. legally they are called closed-end companies and form one of three SEC recognized
types of investment companies along with mutual funds and unit investment trusts. Other
examples of closed-ended funds are investment trusts in the UK and listed investment companies
in Australia.