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Introduction of Indian Mutual Funds

Discussion in 'Current Market Sentiments' started by capitalstars, Sep 11, 2015.

  1. capitalstars

    capitalstars New Member

    Apr 14, 2015
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    The history of mutual funds dates backs to 19th century when it was introduced in Europe, in particular, Great Britain. Robert Fleming set up in 1968 the first investment trust called Foreign and Colonial Investment Trust which promised to manage the finances of the moneyed classes of Scotland by spreading the investment over a number of different stocks. This investment trust and other investments trusts which were subsequently set up in Britain and the US, resembled today’s close – ended mutual funds. The first mutual in the U.S., Massachustsettes investor’s Trust, was set up in March 1924.

    The stock market crash in 1929, the Great Depression, and the outbreak of the Second World War slackened the pace of mutual fund industry, innovations in products and services increased the popularity of mutual funds in the 1990s and 1960s. The first international stock mutual fund was introduced in the U.S. in 1940. In 1976, the first tax – exempt municipal bond funds emerged and in 1979, the first money market mutual funds were created. The latest additions are the international bond fund in 1986 and arm funds in 1990. This industry witnessed substantial growth in the eighties and nineties when there was a significant increase in the number of mutual funds, schemes, assets, and shareholders. In the US, the mutual fund industry registered a ten – fold growth the eighties. Since 1996, mutual fund assets have exceeded bank deposits. The mutual fund industry and the banking industry virtually rival each other in size.


    Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial position, risk tolerance and return expectations etc. The table below gives an overview into the existing types of schemes in the Industry.

    By Structure
    • Open Ended Funds
    • Close Ended Funds
    • Interval Funds
    By Investment Objective
    • Growth Funds
    • Income Funds
    • Balanced Funds
    • Money Market Fund
    Other Schemes
    • Tax Saving Funds
    • Special Funds
    • Index Funds
    • Sector Specific Fund

    Mutual funds have designed to provide maximum benefits to investors, and fund manager have research team to achieve schemes objective. Assets Management Company has different type of sector funds, which need to proper planning for strategic investment and to achieve the market return.

    Portfolio Diversification

    Mutual Funds invest in a well-diversified portfolio of securities which enables investor to hold a diversified investment portfolio (whether the amount of investment is big or small).

    Professional Management

    Fund manager undergoes through various research works and has better investment management skills which ensure higher returns to the investor than what he can manage on his own.

    Less Risk

    Investors acquire a diversified portfolio of securities even with a small investment in a Mutual Fund. The risk in a diversified portfolio is lesser than investing in merely 2 or 3 securities.

    Low Transaction Costs

    Due to the economies of scale (benefits of larger volumes), mutual funds pay lesser transaction costs. These benefits are passed on to the investors.


    An investor may not be able to sell some of the shares held by him very easily and quickly, whereas units of a mutual fund are far more liquid.

    Choice of Schemes

    Mutual funds provide investors with various schemes with different investment objectives. Investors have the option of investing in a scheme having a correlation between its investment objectives and their own financial goals. These schemes further have different plans/options


    Funds provide investors with updated information pertaining to the markets and the schemes. All material facts are disclosed to investors as required by the regulator.


    Investors also benefit from the convenience and flexibility offered by Mutual Funds. Investors can switch their holdings from a debt scheme to an equity scheme and vice-versa. Option of systematic (at regular intervals) investment and withdrawal is also offered to the investors in most open-end schemes.


    Mutual Fund industry is part of a well-regulated investment environment where the interests of the investors are protected by the regulator. All funds are registered with SEBI and complete transparency is forced.


    The mutual fund not just advantage of investor but also has disadvantages for the funds. The fund manager not always made profits but might creates loss for not properly managed. The fund have own strategy for investment to hold, to sell, to purchase unit at particular time period.

    Costs Control Not in the Hands of an Investor

    Investor has to pay investment management fees and fund distribution costs as a percentage of the value of his investments (as long as he holds the units), irrespective of the performance of the fund

    No Customized Portfolios

    The portfolio of securities in which a fund invests is a decision taken by the fund manager. Investors have no right to interfere in the decision making process of a fund manager, which some investors find as a constraint in achieving their financial objectives.

    Difficulty in Selecting a Suitable Fund Scheme

    Many investors find it difficult to select one option from the plethora of funds/schemes/plans available. For this, they may have to take advice from financial planners in order to invest in the right fund to achieve their objectives.


    Investors in India opt for the tax-saving mutual fund schemes for the simple reason that it helps them to save money. The tax-saving mutual funds or the equity-linked savings schemes (ELSS) receive certain tax exemptions under Section 88 of the Income Tax Act. That is one of the reasons why the investors in India add the tax-saving mutual fund schemes to their portfolio. The tax-saving mutual fund schemes are one of the important types of mutual funds in India that investors can option for. There are several companies in India that offer – tax – saving mutual fund schemes in the country.

    SEBI REGULATIONS ON MUTUAL FUND: ( SEBI Regulation Act 1996 | Establishment of a Mutual Fund )

    In India mutual fund play the role as investment with trust, some of the formalities laid down by the SEBI to be establishment for setting up a mutual fund. As the part of trustee sponsor the mutual fund, under the Indian Trust Act, 1882, under the trustee company are represented by a board of directors. Board of Directors is appoints the AMC and custodians. The board of trustees made relevant agreement with AMC and custodian. The launch of each scheme involves inviting the public to invest in it, through an offer documents.

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