A mutual fund is a mechanism for pooling money by issuing units to the investors and investing funds in securities in accordance with objectives as disclosed in the offer document.
Investments in securities are spread across a wide cross-section of industries and sectors and thus the risk is diversified because all stocks may not move in the same direction in the same proportion at the same time. Mutual funds issue units to the investors in accordance with
the quantum of money invested by them. Investors of mutual funds are known as unitholders. The profits or losses are shared by investors in proportion to their investments. Mutual funds normally come out with a number of schemes that are launched from time to time with different investment objectives. A mutual fund is required to be registered with the Securities and Exchange Board of India (SEBI) before it can collect funds from the public.

A mutual fund is set up in the form of a trust, which has sponsored, trustees, Asset Management Company (AMC) and custodian. The trust is established by a sponsor or more than one sponsor who is like a promoter of a company. The trustees of the mutual fund hold its property for the benefit of the unitholders. AMC approved by SEBI manages the funds by making investments in various types of securities. Custodian, who is required to be registered with SEBI, holds the securities of various schemes of the fund in its custody. The trustees are vested with the general power of superintendence and direction over AMC. They monitor the performance and compliance of SEBI Regulations by the mutual fund.
SEBI Regulations require that at least two-thirds of the directors of trustee company or board of trustees must be independent i.e. they should not be associated with the sponsors. Also, 50% of the directors of AMC must be independent.
All mutual funds are required to be registered with SEBI before they launch any scheme.

These schemes offer tax rebates to the investors under specific provisions of the Income Tax Act, 1961 as the Government offers tax incentives for investment in specified avenues, for example, Equity Linked Savings Schemes (ELSS) under section 80C and Rajiv Gandhi Equity Saving Scheme (RGESS) under section 80CCG of the Income Tax Act, 1961. Pension schemes launched by mutual funds also offer tax benefits. These schemes are growth oriented and invest pre-dominantly in equities. Their growth opportunities and risks associated are like any equity-oriented scheme.

The expense ratio represents the annual fund operating expenses of a scheme, expressed as a percentage of the fund‟s daily net assets. Operating expenses of a scheme are administration, management, advertising related expenses, etc. An expense ratio of 1% per annum means that each year 1% of the fund‟s total assets will be used to cover expenses. Information on expense ratio that may be applicable to a scheme is mentioned in the offer document. Currently, in India, the expense ratio is fungible, i.e., there is no limit on any particular type of allowed expense as long as the total expense ratio is within the prescribed limit. For limits on expense ratio, refer to regulation 52 of the SEBI (Mutual Funds) Regulations, 1996.

An abridged offer document [known as Key Information Memorandum (KIM)], which contains very useful information, is required to be given to the prospective investor by the mutual fund. The application form for a subscription to a scheme is an integral part of the offer document. SEBI has prescribed minimum disclosures in the offer document. Mutual fund investments are subject to market risks. An investor should carefully read all the scheme related documents. Due care must be given to portions relating to main features of the scheme, risk factors and recurring expenses to be charged to the scheme, loads, sponsor‟s track record, educational qualification and work experience of the key personnel including fund managers, the performance of other schemes launched by the mutual fund in the past, pending litigations and penalties imposed, etc.

An investor should take into account his risk-taking capacity, age factor, financial position, etc. As already mentioned, the schemes invest in different types of securities as disclosed in the offer documents and offer different returns and risks. Investors may also consult financial experts before taking decisions.

A mutual fund is required to dispatch to the unitholders the dividend warrants within 30 days of the declaration of the dividend and the redemption or repurchase proceeds within 10 working days from the date of redemption or repurchase request made by the unit holder.
In case of failures to dispatch the redemption/repurchase proceeds within the stipulated time period, Asset Management Company is liable to pay interest as specified by SEBI from time to time (15% at present) for the period of delay.

Yes. However, no change in the nature or terms of the scheme, known as fundamental attributes of the scheme e.g. structure, investment pattern, etc., can be carried out unless written communication is sent to each unitholder and an advertisement is given in one English daily newspaper having nationwide circulation and in a newspaper published in the language of the region where the head office of the mutual fund is situated. The unitholders have the right to exit the scheme at the prevailing NAV without any exit load if they do not want to continue with the scheme. Mutual funds are also required to follow a similar procedure while converting the scheme from a close-ended to an open-ended scheme.

There may be changes from time to time in a mutual fund. The mutual funds are required to inform any material changes to their unitholders. Apart from it, many mutual funds send quarterly newsletters to their investors. At present, the Scheme Information Document (SID) is required to be revised and updated at least once a year. In the meantime, new investors are informed about the material changes by way of addendum to the offer document till the time the offer document is revised and reprinted.

The mutual funds are required to disclose full portfolios of all of their schemes on a monthly basis on their website. Portfolio disclosure on a half-yearly basis is published in the newspapers. Mutual funds may also send the disclosure of half-yearly portfolios to their unitholders. The scheme portfolio shows investment made in each security i.e. equity, debentures, money market instruments, government securities, etc. and their quantity, market value and % to NAV. These portfolio statements are also required to disclose illiquid securities in the portfolio,the investment made in rated and unrated debt securities, non-performing assets (NPAs), etc

Yes, there is a difference. Initial Public Offering (IPO) is offered by a company to directly raise money for the company as per the stated objective. In the case of mutual funds, the money garnered is used for investing in eligible securities such as equity and debt instruments of companies, money market instruments, gold, etc. Thus, a mutual fund acts as an intermediary between investors and companies.