Mutual Funds it must be remembered invest the money of several investors many of whom are small time investors, who have either subscribed originally to the mutual fund unit or schemes.
Also, it is a high risk place to put your money and you are not sure what kind of returns you can fetch. Mutual funds in India do not invest in start-ups because of the nature of the risk involved. The job of investing in start ups is left to angel investors or private equity investors.
Many angel investors and private equity investors invest their money in start-ups and this is strictly their domain. What they do is they invest and than exit these investments after these companies list and hence they make handsome returns. Even if they do not list they might want to sell their holdings to another investor.
Read more on Who Are Private Equity Investors
Of course, this is not in all cases, which is why the very nature of private equity and angel investors is taking a risk. Mutual Funds would not like to take risk with the money of small time investors, which is why they avoid investing in start-ups. Their strength lies in investing money of investors in listed companies after careful research and analysis.