Mutual Fund | in-depth informaiton.

 

Introduction:

A mutual fund is a type of investment vehicle that pools money from multiple investors to purchase securities. These securities can include stocks, bonds, and other assets, and are managed by professional fund managers. Mutual funds offer investors the opportunity to gain exposure to a diverse portfolio of assets, making them a popular choice for those who want to diversify their investments.

The value of a mutual fund's shares is determined by the net asset value (NAV) of the underlying securities, which is calculated by dividing the total value of the securities by the number of shares outstanding. Mutual funds are bought and sold at the end of each trading day at the NAV price.

There are different types of mutual funds, such as stock funds, bond funds, and index funds, each with their own unique characteristics and risks. Stock funds invest in equities, bond funds invest in fixed-income securities, and index funds aim to replicate the performance of a specific market index.

Investing in mutual funds carries risk, like all investments, and the value of the mutual fund can decrease as well as increase. It's important to read the mutual fund prospectus and understand the risks before investing.

Mutual funds can be a great choice for investors who want professional management, diversification, and a convenient way to invest in a wide range of assets.

When was Mutual Fund started in India?

The first mutual fund in India was the Unit Trust of India (UTI), which was established in 1963. The UTI was set up by an Act of Parliament and was initially created to mobilize small savings by offering the general public an opportunity to invest in a diversified portfolio of securities. The UTI was promoted by the government of India and functioned under the regulatory framework of the Reserve Bank of India (RBI).

In 1978, the UTI was de-linked from the government and was made an independent entity governed by the Unit Trust of India Act. In 2003, UTI was bifurcated into two separate entities: UTI Mutual Fund and the Specified Undertaking of the Unit Trust of India (SUUTI).

After the success of UTI, other private sector mutual funds started to enter the market in the late 1980s and early 1990s. Today, India has a mature mutual fund industry with more than 40 active fund houses and thousands of mutual fund schemes.

In the 1980s, several private sector asset management companies (AMCs) were granted licenses to operate mutual funds in India. These AMCs were promoted by some of the leading business houses in the country, such as the Birla group, the Tata group, and the HDFC group.

In 1992, the Securities and Exchange Board of India (SEBI) was established to regulate the securities market in India. This paved the way for further development of the mutual fund industry, as SEBI introduced various regulations to protect the interests of mutual fund investors.

In the following years, the mutual fund industry in India has grown rapidly, with an increasing number of AMCs and mutual fund schemes being launched. As of 2021, there are more than 40 active fund houses and thousands of mutual fund schemes in India.

The Indian mutual fund industry is also witnessing the advent of new technologies like robo-advisory platforms and mobile apps, which are making it easier for retail investors to invest in mutual funds. Today, mutual funds in India have become an important investment option for investors of all levels, from retail investors to institutional investors.

In summary, The mutual fund industry in India started in 1963 with the establishment of Unit Trust of India (UTI), and has grown rapidly since the 1980s with the entry of private sector players and the establishment of the Securities and Exchange Board of India (SEBI) in 1992, which regulated the mutual fund industry in the country.

Benefits of Mutual Fund?

1. Professional management: Mutual funds are managed by professional fund managers who have the expertise and resources to conduct thorough research and make informed investment decisions.
2. Diversification: Mutual funds offer investors the opportunity to diversify their investments across a range of assets, reducing the risk of investing in a single stock or bond.
3. Convenience: Mutual funds are easy to buy and sell, and can be purchased through a variety of channels, including online platforms and mobile apps.
4. Liquidity: Mutual funds are highly liquid, meaning that investors can buy or sell shares on any business day at the net asset value (NAV) price.
5. Affordability: Mutual funds have low investment minimums, making them accessible to a wide range of investors, including those with limited resources.
6. Transparency: Mutual funds are required to disclose their portfolio holdings and other financial information, providing investors with a clear picture of their investments.
7. Flexibility: Mutual funds offer a wide range of investment options, including stock funds, bond funds, and index funds, allowing investors to choose the type of fund that best fits their investment goals and risk tolerance.
8. Tax-efficiency: Mutual funds can provide tax-efficient returns, specially when held for a long term, as long-term capital gains on equity funds are taxed at a lower rate than short-term gains.

In summary, Mutual funds offer a variety of benefits to investors, including professional management, diversification, convenience, liquidity, affordability, transparency, flexibility and tax-efficiency.

What is diversification and asset allocation in Mutual Fund?