Learning Center

A Mutual Fund is a trust registered with the Securities and Exchange Board of India (SEBI), which pools up the money from individual / corporate investors and invests the same on behalf of the investors /unit holders, in equity shares, Government securities, Bonds, Call money markets etc., and distributes the profits. The income earned through these investments and the capital appreciation realised are shared by its unit holders in proportion to the number of units owned by them. This pooled income is professionally managed on behalf of the unit-holders, and each investor holds a proportion of the portfolio i.e. entitled not only to profits when the securities are sold, but also subject to any losses in value as well.

For retail investor who does not have the time and expertise to analyze and invest in stocks and bonds, mutual funds offer a viable investment alternative.

This is because:
1.Mutual Funds provide the benefit of cheap access to expensive stocks.
2.Mutual funds diversify the risk of the investor by investing in a basket of assets.
3.A team of professional fund managers manages them with in-depth research    inputs from investment analysts.
4.Being institutions with good bargaining power in markets, mutual funds have    access to crucial corporate information which individual investors cannot    access.

1.Affordability
2.Professional Management
3.Diversification
4.Variety of Investment according to Financial status of the Investor Return    potential
5.Flexibility
6.Transparency
7.Tax Benefits
8.Liquidity
9.Clear – Cut regulations [SEBI]

No Control over Costs
Investor has to pay investment management fees as long as he remains in the fund.

No Tailor Made Portfolios
Investors who invest on their own can build their own portfolios of shares, bonds and other securities Investing through funds means he delegates this decision to fund managers

Managing Portfolio of Funds
Availability of large number of funds can actually mean too much of choice for the investor. He may again need advice on how to select a fund to achieve his objectives

In an open-ended mutual fund there are no limits on the total size of the corpus. Investors are permitted to enter and exit the open-ended mutual fund at any point of time at a price that is linked to the net asset value (NAV).

In case of closed-ended funds, the total size of the corpus is limited by the size of the initial offer.

Yes. But the only difference is that in case of open-ended funds, a month after the initial offer closes the continuous offer period starts when the investor can enter and exit the fund at a price linked to the NAV

1.Unit Trust of India is the first Mutual Fund set up under a separate act, UTI Act in 1963, and started its operations in 1964 with the issue of units under the scheme US-64

2.In the year 1987 Public Sector banks like State Bank of India, Punjab National Bank, Indian Bank, Bank of India, and Bank of Baroda have set up mutual funds.

3.Apart from these above mentioned banks Life Insurance Corporation [LIC] and General Insurance Corporation [GIC] too have set up mutual funds

4.With the entry of Private Sector Funds a new era has started in Mutual Fund Industry [ex:- Reliance Mutual Fund, Deutsche Mutual Fund, ICICI Mutual Fund, HDFC Mutual Fund etc]

Securities Exchange Board of India (SEBI) is the regulatory body for all the mutual funds mentioned above. All the mutual funds must get registered with SEBI. The only exception is the UTI, since it is a corporation formed under a separate Act of Parliament.

Financial theory states that an investor can reduce his total risk by holding a portfolio of assets instead of only one asset. This is because by holding all your money in just one asset, the entire fortunes of your portfolio depend on this one asset. By creating a portfolio of a variety of assets, this risk is substantially reduced.

Can mutual funds be viewed as risk-free investments?
No. Mutual fund investments are not totally risk free. In fact, investing in mutual funds contains the same risk as investing in the markets, the only difference being that due to professional management of funds the controllable risks are substantially reduced.

What are the risks involved in investing in mutual funds?
A very important risk involved in mutual fund investments is the market risk. When the market is in doldrums, most of the equity funds will also experience a downturn. However, the company specific risks are largely eliminated due to professional fund management.

Investors need to be clear that mutual funds are essentially medium to long term investments. Hence, short-term abnormal profits will not be sustainable in the long run. But in the medium to long run the mutual funds tend to outperform most other avenues of investments at the same time avoiding the risk of direct investment accompanied with professional fund management.