A mutual fund basically collects money from investors, pools it together and invests it in various options like stocks, bonds or both. The investing decisions are taken by professionally equipped managers who understand the market well, and try to create value for the investors over a period of time.

As an investor, you can buy mutual fund 'units', which basically represent your share of holdings in a particular scheme. These units can be purchased or redeemed as needed at the fund's current net asset value (NAV). These NAVs keep changing, according to the fund's holdings.

All the mutual funds are registered with SEBI. They have to function within the provisions of strict regulation created to protect the interests of the investor.

NAV is the value of a fund's asset less the value of its liabilities per unit. In simple terms, NAV = (Value of Assets-Value of Liabilities)/number of units outstanding.

A mutual fund is set up in the form of a trust that has a Sponsor, Trustees, Asset Management Company (AMC). The trust is established by a sponsor(s) who is like a promoter of a company and the said Trust is registered with Securities and Exchange Board of India (SEBI) as a Mutual Fund. The Trustees of the mutual fund hold its property for the benefit of unit holders. The trustees are vested with the power of superintendence and direction over the AMC.
An Asset Management Company (AMC) approved by SEBI manages the fund by making investments in various types of securities.

A new fund offer (NFO) is the first time subscription offer for a new scheme launched by the asset management companies (AMCs).

Open ended funds buy and sell units on a continuous basis and allow investors to enter and exit as per their convenience.

Close-ended funds have a fixed maturity. Investors can buy units of a close-ended scheme from the fund only during its NFO. The fund makes arrangements for the units to be traded post-NFO in a stock exchange. This is done through a listing of the scheme in a stock exchange.

These funds combine features of both open-ended and close-ended schemes. They are largely close-ended, but become open-ended at pre-specified intervals

Return grade is the rating given to a fund based on its particular attributes. A return grade is defined as a quality rating of the stock or the bond based on the returns it offers to the investor and is used for the risk-return profile assessment.

AUM is the relative size of mutual fund companies that is assessed by their assets under management (AUM). When a scheme is first launched, assets under management would be the amount mobilized from investors. If the scheme has a positive profitability metric, its AUM goes up; a negative profitability metric will pull it down.

Units of a Mutual Fund scheme give investors exposure to a range of securities held in the investment portfolio of the scheme. Thus, even a small investment in a mutual fund scheme can give investors a diversified investment portfolio.