Mutual Fund- Part 1

1. What is Mutual Funds?

⇒ A Mutual Fund is a trust that collects money from many investors and invest in various assest classes (equity, debt, liquid asset, etc).

It is called "Mutual" because all the profit, loss, risks and dividends from the investments are shared among all the investors according to their contributions.

2. History of Mutual Funds?

⇒ Unit Trust of India (UTI) was the first mutual fund set up in India in the year 1963. In early 1990s, the government allowed public sector banks and institutions to set up mutual funds. In the year 1992, Securities And Exchange Board Of India(SEBI) Act was established.

The objectives of SEBI are :

to formulate policies and regulates the mutual funds
to protect the interest of investors
to promote the development of securities market

In 1993, SEBI notified regulations for the mutual funds. After 1993, Private sector companies started to offer mutual funds.

In 1996, the regulations were completely revised and updated. Thereafter, SEBI issued guidelines to Mutual funds from time to time to protect the interest of investors.

3. Types of Mutual Funds?

⇒ There are variety of mutual funds and it causes confusion to the common people. The following list will help you to understand better.

Mutual funds by company size :

Large Cap Funds: These funds invest a large portion of their corpus in companies with large market capitalization. These funds generally offer stable and sustainable returns over a period of time.

Mid Cap Funds: These funds invest a large portion of their corpus in companies with mid size market capitalization. These funds generally offer medium returns over a period of time. These funds are classified as "medium volatile, medium risk, medium returns" type.

Small Cap Funds: These funds invest a large portion of their corpus in companies with small size capitalization. These funds generally offer high returns over a period of time, These funds are classified as "high volatile, high risk, high returns" type.

Multi cap Funds: These funds invest in stocks across market capitalization. That is, their portfolio comprises of large cap, mid cap and small cap stocks. They are relatively less risky compared to a pure mid cap or a small cap fund and are suitable for not-so-aggressive investors.

Mutual funds by structure :

Open Ended Schemes: These schemes don't have a fixed maturity period. You can buy or sell the units at any time of the year as per NAV prices. The key feature of this scheme is liquidity. You can take out your money whenever you want. These schemes announce NAV on a daily basis.

Close Ended Schemes: These scheme come with a fixed maturity period. You can invest in these schemes only at the time of initial issue called "New Fund Offer (NFO)". You can sell the units at a specified maturity date. In addition, these schemes are listed on the Stock Exchange where you can buy or sell units of the fund. These schemes announce NAV on a weekly basis.

Interval Schemes: These schemes combine the feature of both open ended and close ended schemes. You can buy or sell the units at pre-determined intervals at NAV price. In addition, these schemes are listed on the stock exchange where you can buy or sell units of the fund.

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