Mutual Fund: A Discussion
For the Capital Budgeting of a nation domestic saving plays an important role. But it is very unfortunate that only small portion of domestic saving is invested in this behalf. To resolve this issue Mutual fund plays an important role in this area.
As per the definition given in Wikipedia “A mutual fund is a type of professionally-managed collective investment scheme that pools money from many investors to purchase securities. While there is no legal definition of mutual fund, the term is most commonly applied only to those collective investment schemes that are regulated, available to the general public and open-ended in nature. Hedge funds are not considered a type of mutual fund.”
Mutual funds are “open ended” investments funds, that means the new investors can contribute money to the fund at any time and also the existing investors can take back their units or shares to the fund at any time. It provides different opportunities to the investors according to their needs.
In a mutual fund; the investments from different types of investors are collected as a group fund and the it is invested in different sectors with the help of mediators. Then the income or profit from such investments is distributed amongst the investors as per the rule of the partnership such that every investor gets possible maximum profit at possible minimum risk.
Mutual Fund in India:
The concept of mutual fund comes into force in India in the decades of 1960 with the objectives to provide capital resources to the industries. The Bill for Unit Trust of India was passed on 26th November, 1963 in the Indian Constitution.
In this regard it is to be noted that the objectives of formation of Unit Trust of India were:-
a) Collect small saving form public
b) Distribute the saving in different types of investments
c) And distributes the profit or income among the unit / share holders.
Advantages with Mutual Fund:
1. Minimum Risk: Investors have the opportunities to get possible maximum return at possible minimum risk. Due to alternatives in usage , the units of Mutual Funds can contain less risk or no risk.
2. Regular Income: The profits earned by Mutual Fund Companies is distributed among investors.
3. Tax Benefits : There different types of tax benefits from Income Tax Authorities to Investors
4. Benefit of Diversification: Through Mutual Fund the Investors can invest their money different kind investments which he desires.
5. Transparency : Mutual Funds values are published in news papers on a regular basis by which the investors can get information of their Investment.
6. Easy to Invest : While investing in Mutual Fund the Investors do not have to think more, because the money invested in the fund is invested in different types of Securities and Bonds.
7. Professional Help : In general the Mutual Funds are managed by a group of financial nad professional manager.
Disadvantages :
1. Unable to provide steady income : Mutual Fund has been unable to provide a stable and certain earning.
2. The Investors has to borne the burden of administrative fees , commission of the agent etc.
3. Even today the area of actions of Mutual Fund is mainly limited to urban area.
4. Some time due to improper investment the investors are not getting proper return.
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