Mutual Fund is a pool of money managed by professional fund manager. Mutual Fund Companies hire professionals to manage money pooled from investors. Mutual Fund Companies create the Fund like Equity Fund, Balanced Fund, Debt Fund and so on. In India, license from Securities Board of India, to start Mutual Fund operations is required. In India, SEBI controls and regulates the Mutual Fund Companies.
The Mutual Fund Companies set up the Fund, after compliance from regulator, start collecting the money from the investors. These money are invested as per the specific requirements of the Fund. For example, in case of Equity Fund, the whole of the money collected for this fund are invested in Equities. On the other hand, if the fund is balanced, then the money is invested in some predetermined proportion in equity and debt or fixed income bearing instruments.
Hence the mutual fund companies act as mediator between the investor and the equity and other market. They earn brokerage on buying and selling of instruments. Further they also charge certain percentage as commission or service charge for their services.
The concept of mutual fund is to support the investors in their investments of objective of wealth creation and earn income on the investments. The fund manager of Mutual Fund Companies is generally having expert knowledge of the market, the investors can benefit.
The investments through fund house may not be required for all the classes of investors. Specifically, if the investors are good enough to understand the equity and financial market, they can directly invest in Equity/Debt instruments. Even the investors are not so well versed also, now a days due to technology, there are various reports available online from time to time on the market and instruments. The investors will have readymade report to select the stocks and debt instruments. Hence, the service of Mutual Companies would be avoided by the investors. However, we cannot ignore the professional services form the Fund Managers of Mutual Fund Companies.