Whatis the mutual fund?

An open-end investment company that offers the investor the benefits of portfolio diversification (provides greater safety and reduced volatility), and professional management. The shares are redeemable on demand at their net asset value. The fund invests the pooled assets into various investment vehicles including stocks, bonds, options, commodities and money market securities. How the fund invests is determined by the fund's objectives. ...

A mutual fund is a pool of a great many stocks (or, less commonly, bonds), usually with something in common, such as the Hig-Tech Fund or the Small Capital Fund. They are selected by experts (mine are with Scudder Investments), and the idea is that your money is safer because it is spread out. If one stock goes down, others will go up, and so you don't lose as easily. You don't get the spectacular gains you might get with a single fast-moving stock, but you won't lose your shirt, either.

An investment company that continually offers new shares and buys existing shares back at the request of the shareholder and uses its capital to invest in diversified securities of other companies.
Investing in a mutual fund is not as safe as investing in a bank or a savings and loan association.
There are two general types of mutual funds. An investor in an open-end fund may request at any time that the fund buy back, or redeem, that investor's shares.
Closed-end funds are traded on stock exchanges or the over-the-counter market.
Unlike open-end funds, closed-end funds usually have a fixed number of shares, which are purchased and redeemed at their market price plus a commission.

A mutual fund is a collective investment vehicle, typically a trust that has the mandate of a group of investors to invest on their behalf. Hence, instead of one individual, a group get together and appoint a professional to manage their money. The main advantages, typically, are Diversification (many people's money means more investment options), Professional Management (qualified individuals who know the market), Regulatory Oversight (in the US, SEC and in India, the SEBI have pretty strict guidelines) and Choice (there are many types of MFs). Hope this helps...