Mutual Fund

A mutual fund is a type of professionally managed collective investment scheme that pools money from many investors to purchase securities. While there is no legal definition of the term "mutual fund", it is most commonly applied only to those collective investment vehicles that are regulated and sold to the general public. They are sometimes referred to as "investment companies" or "registered investment companies."

Types Of Mutual Funds

On the Basis of Ownership

• Public Sector Mutual Funds

• Private Sector Mutual Funds

On the Basis of Scheme of Operations

• Open Ended Schemes

• Close Ended Schemes

Contd..

On the Basis of Portfolio• Growth Funds/Equity Funds• Balanced/Conservative Funds• Taxation Funds• Money Market Mutual Funds• Sectoral/Thematic Funds

On the Basis of Location• Domestic Funds• Off-Shore Funds

Benefits of Investment in Mutual Funds

Diversification

Expert supervision & management

Liquidity

Reduced risk

Tax advantage

Higher returns

Investor’s Protection

Limitations of Investment in Mutual Funds

Fees

Less control over timing of recognition of gains

Less predictable income

No opportunity to customize

Structure of Mutual Fund Industry in India

1 Tier – Sponsor

2 Tier – Trustees

3 Tier – Asset Management Company

Phases of Mutual Fund Industry in India

Phase 1 1964-87 Growth of UTI

Phase 2 1987-93 Entry of Public Sector Funds

Phase 3 1993-96 Emergence of Private Funds

Phase 4 1996-99 Growth & SEBI Regulations

Phase 5 1999-04 Emergence of a Large & Uniform Industry

Phase 6 2000 Onwards Consolidation & Growth

Are Mutual Funds crediblefor Small Investors ?

The credibility of Mutual Funds for small investors can either be Favorable or Unfavorable.

Therefore, we can study the same with the help of following Age Groups :-

I. Below 35 Years

II. 35 - 50 Years

III. Above 50 Years

FAVORABLEFACTORS

Age Group :Below 35 Years

Small Investors below 35 years of age may belong to either Middle Income Group or Lower Middle Income Group. These can be further classified as :-

i. College Students

ii. Employees

iii. Professionals

iv. Entrepreneurs

Benefits Of Mutual FundsFor Investors Below 35 years

AffordabilityMutual Funds cater to people who’d like to invest for duration ranging from a day to years. Minimum amounts of investment range from as low as Rs. 500, with no upper limit.

Easy to buy and sellMutual funds are widely available through banks, financial planning firms, investment firms, credit unions and trust companies. You can sell your fund units or shares at almost any time if you need to get access to your money.

Contd..

Helps In Handling Paperwork Capital gains and losses from the sale of stocks, as well as dividend- and interest-income earnings, are summarized into a report for each shareholder at the end of the year for tax purposes. Funds also manage the day-to-day choressuch as dealing with transfer agents, handling stock certificates, reviewing brokerage confirmations, and more.

DiversificationGoing by the adage, 'Do not put all your eggs in one basket', mutual funds help mitigate risks to a large extent by distributing your investment across a diverse range of assets. Mutual funds offer a great investment opportunity to investors who have a limited investment capital.

Contd..

Reduces the anxiety of Investing

Most investors constantly live with a certain amount of anxiety and fear about their investments because they feel they lack one or more of the following essentials:(1) Market knowledge(2) Investing experience(3) Self-discipline(4) Proven game plan(5) TimeBecause of their inherent design that taps professional expertise and spreads risk, mutual funds can go a long way toward relieving the anxiety associated with investing.

Contd..

Education

Many parents use mutual funds to invest for children’s college education. The investor’s time horizon is an essential consideration when investing for education.

Emergency Reserves and Other Short-Term Goals

Emergency reserves are assets one may need unexpectedly on short notice. Many investors use money market funds for their reserves.