MEANING:

Mutual funds mean a fund in the form of trust through investment schemes by selling units to form a corpus. The money raised through corpus is invested in capital market instruments, money market instruments, and gold or gold-related securities.

It is basically, a group of individuals in the form of the body corporate who are experts in the capital market. They are an intermediary between the general investors and the stock market.

ADVANTAGES:

• Mutual funds invest in a large number of companies across a broad section of industries and sectors. This reduces the risk also because seldom do all stocks decline at the same time and in the same proportion.
• Investors get regular information on the value of their investment in addition to disclosure on the specific investments made by the scheme.
• Mutual funds provide a higher return as they invest in a diversified basket of selected securities.
• They are a less expensive way to invest as compared to direct investment in the capital market because of the benefits of scale in brokerage, custodial and other fees.
• Investors can get their money back promptly at net asset value related prices from the mutual fund themselves, in an open-ended scheme. Investors can sell their units on a stock exchange at the prevailing market price, in case of a close-ended scheme, etc.

RISKS INVOLVED:

• Excessive diversification leads to loose of focus on the securities of the key segments.
• Fund managers are unusually unaccountable for poor results.
• Poor planning of investment with minimum returns etc.

CONSTITUENTS OF MUTUAL FUND:

Five principal constituents

• Mutual fund: A mutual fund established under the Indian Trust Act 1882 to raise money through the sale of units to the public by investing in the capital market.
• The asset management company(AMC): AMC incorporated in the Companies Act, 2013 or previous company law is required to manage the funds of the mutual fund.
• Sponsor: A person who acts alone or in combination with another body corporate in order to establish a mutual fund.
• Trustees: it means the Board of trustees or the trustee company that holds the property of the mutual fund in trust for the benefit of the unitholders.
• Unitholders: An investor who owns the units issued by a trust is known as the unitholder like a real estate investment trust.

Three market intermediaries

• Custodian of securities: It means a person who carries on the business of providing custodial services to the client. It keeps the custody of the securities of the client.
• Transfer agents: They issue and redeem mutual funds units, prepare the transfer documents and maintain updated investment records.
• Depository: A depositor facilitates the smooth flow of trading and ensures the investors about their investment in securities.

TYPES OF MUTUAL FUNDS:

• Income-oriented schemes: The fund primarily offers fixed income to investors by investing in fixed income yielding like bonds or debentures.
• Growth-oriented schemes: These funds satisfy the growth needs of the investors, primarily by concentrating on high income and rapid capital appreciation, by holding good quality scrips.
• Hybrid schemes: These funds fulfil the prospective needs of investors by offering fixed income as well as growth orientation. They are a judicious mix of fixed-income securities and sound equity scrips.
• Money market mutual funds: These funds invest in short-term debt securities like a certificate of deposits, government treasury bills, etc. the funds normally get a higher yield on investment.
• Tax saving mutual funds: These funds offer tax rebates to the investors under tax laws from time to time because the government offers tax incentives for investment in certain specified avenues. For example, equity-linked saving schemes and pension schemes.

This Article Does Not Intend To Hurt The Sentiments Of Any Individual Community, Sect, Or Religion Etcetera. This Article Is Based Purely On The Authors Personal Views And Opinions In The Exercise Of The Fundamental Right Guaranteed Under Article 19(1)(A) And Other Related Laws Being Force In India, For The Time Being. Further, despite all efforts that have been made to ensure the accuracy and correctness of the information published, White Code Legal and Tax shall not be responsible for any errors caused due to human error or otherwise.