How does a mutual fund operate?

A mutual fund is a pool of money collected from different individuals. The objective for collecting these funds is to invest in securities, stocks, bonds, etc. Individuals invest with an objective to grow their wealth. Professional fund managers manage these funds by carrying out research and using their expertise. They invest in various financial avenues.
Different schemes of the mutual funds have their objectives depending on the time horizon and risk profile. So, a mutual fund with a long-term vision will invest in equity mutual funds. On the other hand, a mutual fund with a short or medium term time frame will invest in debt mutual funds such as bonds, government securities. Again, these equity funds carry higher risks whereas the debt mutual funds carry relatively lower risks.

In India, mutual funds operate under the guidelines set by the Security Exchange Board of India (SEBI).

How mutual funds work