WHAT ARE MUTUAL FUNDS?

A mutual fund is an investment vehicle made up of a pool of moneys collected from many investors for the purpose of investing in securities such as stocks, bonds, money market instruments and other assets. Mutual funds are operated by professional money managers, who allocate the fund's investments and attempt to produce capital gains and/orincome for the fund's investors. A mutual fund's portfolio is structured and maintained to match the investment objectives stated in its prospectus.

Let's explain this term in a very simple way. Let's assume that you as an investor have no idea of shares and stocks. You need professional help and expertise. All you have to do is invest in a mutual fund scheme. A mutual fund scheme collects money from investors and buys and sell stocks collectively.
Let's give you an example 
                                    Say, there is a Mutual Fund Scheme called Super Returns Mutual Fund, launched by Super Returns Asset Management Company. What this fund does it comes out with a new offer of a scheme called Super Return Mid Cap Scheme. When it gathers say Rs 100 crores, it invests the money gathered from several investors into the stock markets. If the scheme is an equity scheme it would invest most of its money in shares, while if it was a debt scheme it would invest the same in debt like government securities, bonds etc. Now, the fund will offer you units at Rs 10 initially. You buy one unit at Rs 10. Say, you buy 1000 units at Rs 10 and you pay a sum of Rs 10,000. One year down the line the stocks invested by the Super Return Mid Cap Fund rise and net asset value climbs to Rs 12. You can now sell the units back to the mutual fund at Rs 12 and you would get Rs 12,000 for your 1000 units.