Merchant Banking and Financial Services, III Semester (MBA), UNIT-1
Definition of Mutual Fund
‘A mutual fund means pooling the investments of a number ofinvestors by way of investment in units of equal size’. They are financialintermediaries which collect funds from the public and invest them in a diversified portfolio of securities, including equity, bonds debenture and other instruments issued by business or government undertakings. The purpose of mutual fund is to help small investors participate in the securities market indirectly with reduced risk for small investors by diversifying the investment into various types of securities of different corporations and industry. Unit Trust of India is the first mutual fund in India and it was established in the year 1964. Initially, UTI launched the scheme of Unit Scheme 64 and slowly, the mutual fund growth scheme was launched in1986. The success of this scheme encouraged other institutions such as SBI mutual funds, Canbank mutual funds, LIC of India etc to enter this field. Private sectors are also allowed to enter the mutual fund industry and at present there are 40 mutual fund companies in India.
Benefits of Mutual Funds
Small investors can get diversified portfolio of assets which
reduces the risks of investment.
Small investors are not aware of risk and return in various
investments. Mutual Funds remove the effects of this ignorance as they are
having expert team to manage the fund.
Mutual Fund Units can be traded in the secondary market by the
small investors or it can be repurchased by the Mutual fund itself.
Investors can get tax-relief under section 80L of the Income Tax
Act.
Mutual funds are guided and regulated by SEBI and hence, investors
are protected from risk of loss.
The detailed note about Mutual Fund is given in Unit-4.
