Why and how mutual fund are safer option for small investor?Can mutual fund wash away the market risk also?

When you say MF is a safer option, you are comparing it against buying stocks.

If you want to make it big in the stock market, you need to study the market and individual stock carefully before making investments. Later you have to monitor and keep track of your stocks, in most of the cases, to make sure you buy/sell at the right time. Again, it is always a challenge to pin point the "RIGHT TIME". So this is a risk for a small time or a new investor.

In case of Mutual finds, your money goes into a common pool or a fund. There are experienced people who act as fund managers. These guys do the analysis and investment on the behalf of people who have invested in the mutual fund.

So, even though not completely foolproof, MF option is a much safer option for small time and new investors.

As for washing away the market risks, MFs have provision for SIP (Systematic Investment Plans), where you can invest a small amount of money every 15-30 days. This averages out the market peaks to a large extent.

Mutual fund is not a safe option. Check out http://easymf.co.in/

Portfolio management theories have been argued since the beginning of the stock market. Basically, the reason a mutual fund is so safe is because of its diversification, however, it may not be true that they are safer investments. I recommend mutual funds not to the smaller investor, but the investor who is un willing or unable to put in the appropriate research time to make a proper investment decision. Basically instead of doing it yourself, your paying a fund manager to do it for you. Dont be afrad of the stock market if your not a huge investor. By learning the ways of the market and putting together you own diversified portfolio and doing your homeowrk, you can out perform mutual funds as a whole because of a decrease in management fees.
As far as washing away market risk....there is no such thing in my opinion. The market is going to do what it is going to do. By correctly positioning yourself in the market, you can acheive long term success by hedging all other risks, but market risk is deemed "undiversifyable."

Note: The biggest risk in my opinion is not doing your research. Even mutual funds need to be researched. Once again, if your unable to do this, and you still want to enjoy the gains from the stock market, put your money into spider funds or broaf range exchange traded funds that are directly coorelated to the major indexes. Let me know if this has been helpful