Mutual Funds: Organizational Aspects

Mutual Funds are one the most popular investment avenues in India. And in current financial turmoil mutual funds have become preferred investment avenues. So there are huge discussions about funds in India. In the current article the organizational aspects of mutual funds are presented.

What is a Mutual Fund?

A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities depending upon the scheme’s stated objective. The income earned through these investments and the capital appreciation realized are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost.

Mutual Funds in India are registered with Securities and Exchange Board of India (SEBI).

How are Mutual Funds set up?

In India, mutual funds need to be registered with the Securities and Exchange Board of India (SEBI), before they can, collect funds (or launch schemes) from the public. SEBI is the capital market regulator in India.

  • Mutual funds are set up in the form of trust. The trust is established by sponsors in much the same way as promoters set up companies. The trustees hold the fund’s property for the benefit of unit holders. The Trust is registered under the Indian Trust Act.
  • The Trust funds are managed by the Asset Management Company (AMC). The AMC is a corporate entity established by the sponsors and registered under the Companies Act.
  • A Custodian holds the securities of a mutual fund schemes. Custodian is appointed by the trustees.
  • The Trustee Company, AMC and the custodians need to be registered with SEBI.
  • An individual, body corporate or bank which sets up the Trustee Company and the AMC is called the sponsor. The sponsor has to contribute at-least 40% to the net worth of the Asset Management Company.

Mutual Funds: Types

Mutual Funds offers a wide variety of schemes/funds that are designed to meet your investment needs, whatever your age, financial position, risk tolerance or expectation of return there are funds to meet your investment requirement.

Funds may be broadly classified as open-ended, close-ended or interval funds, based on the frequency of sale or purchase of unit; they may also be classified as equity, debt, balanced or liquid funds, based on the asset in which the investment is made predominantly.

Advantages

There are so many advantages of the mutual funds. These are as below:

  • Professional management
  • Diversification
  • Economies of scale
  • Liquidity
  • Rupee-cost averaging
  • Affordability
  • Tax benefits
  • Convenience
  • Your views matter a lot to start a healthy discussion.

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