A mutual fund is a collective investment that pools together the money of a large number of  investors to purchase a number of securities like stocks, bonds etc. When you purchase a share  in the mutual fund, you have a small stake in all investments included in that fund. Hence, by  owning a mutual fund, the investor participates in gains or losses of all the companies in the  fund. For instance, you can take a mutual fund as a basket of investments. When you purchase  a share of that mutual fund, you are buying one share of this basket and hence has an ownership  in all the investments in one such basket.  

Benefits of investing in a mutual fund   

A simple way to make a diversified investment– A mutual fund has a number of  securities like stocks, bonds, fixed etc. already in its portfolio. Therefore, buying a  mutual fund is a simple way to make a diversified investment. Further, diversification  also reduces risk which is an added benefit of buying a mutual fund.  

Managed by a financial professional– The Fund manager or managers actively manage  a mutual fund. They try to give the maximum returns to the investors using their  professional expertise. Hence, those investors who don’t have time to invest on their  own can get benefits from the expertise of these fund managers.  

 Allow investors to participate in a wide variety of investments– This is one of the  greatest advantages of buying a mutual fund. There are a variety of mutual funds  available to invest in equity funds (Index funds, growth funds, etc.), fixed income funds,  income tax saver funds, balanced funds etc. An investor can easily select the best one  which suits his strategy.  

 Investors can buy/sell/increase/decrease their mutual funds whenever they want– There  is great flexibility for the investors while investing in mutual funds. They can easily  buy, sell, increase or decrease their investment in different funds within seconds.
   

Disadvantages of Mutual Funds  

Fees and Expenses: There are a couple of possible fees in mutual funds like expense  fee, exit fees etc. which might reduce the overall returns.
  

No Insurance: There is no guarantee of success in mutual funds. The mutual  fund providing companies always state the following in the declaimer in their  advertisements: 

Mediocre Performance: On an average, a majority of mutual funds are not able to  beat the market indices.  

Loss of Control: The fund managers are responsible for buying and selling of the  securities and you have no say in managing the portfolio. You are trusting someone  else with your money when you invest in mutual funds.  

However, please note that it’s suggested to read the mutual fund prospectus carefully before  subscribing as some mutual funds have an entry or exit-load. 

Important links –  

 1.https://www.investopedia.com/articles/basics/05/diversification.asp

  2.https://cleartax.in/s/importance-long-term-investment-mutual-funds