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Mutual Funds in India

Guest post by: Kaviraj Singh

Article Overview: 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. The income earned through these investments and the capital appreciations realized are shared by its unit holders in proportion to the number of units owned by them.

Mutual Funds in India

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. The income earned through these investments and the capital appreciations realized are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. The flow chart below describes the broadly the working of a Mutual Fund.

INVESTORS ____ Pool their money with -___ THE FUND MANAGER ______ Invest in ____

SECURITES _______ Generates - returns -

passed back to the INVESTORS.

What is the history of Mutual Funds in India and role of SEBI in mutual funds industry?

Unit Trust of India was the first mutual fund set up in India in the year 1963. In early 1990s, 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 passed. The objectives of SEBI are - to protect the interest of investors in securities and to promote the development of and to regulate the securities market.

SEBI amends MF Regulations to permit launch of capital protection oriented schemes vide notification dated 25 August, 2006. Securities and Exchange Board of India, vide its circular dated 14th August 2006 has amended the SEBI (Mutual Funds) Regulations to provide for the launch of capital protection oriented schemes. The term ‘capital protection oriented scheme' means a mutual fund scheme which is designated as such and which endeavors to protect the capital invested therein through suitable orientation of its portfolio structure;"

As far as mutual funds are concerned, SEBI formulates policies and regulates the mutual funds to protect the interest of the investors. SEBI notified regulations for the mutual funds in 1993. Thereafter, mutual funds sponsored by private sector entities were allowed to enter the capital market. The regulations were fully revised in 1996 and have been amended thereafter from time to time. SEBI has also issued guidelines to the mutual funds from time to time to protect the interests of investors.

All mutual funds whether promoted by public sector or private sector entities including those promoted by foreign entities are governed by the same set of Regulations. There is no distinction in regulatory requirements for these mutual funds and all are subject to monitoring and inspections by SEBI. The risks associated with the schemes launched by the mutual funds sponsored by these entities are of similar type.

SEBI approved Asset Management Company (AMC) which manages the funds by making investments in various types of securities. Custodian, registered with SEBI, holds the securities of various schemes of the fund in its custody. The general power of superintendence and direction over AMC is vested with the trustees.

According to SEBI Regulations, two thirds of the directors of trustee company or board of trustees must be independent. They should not associate with the sponsors. 50% of the directors of AMC must be independent. All mutual funds are required to be registered with SEBI before they launch any scheme.

Increase of load more than the level mentioned in the offer document is applicable only to prospective investments by MFs. FOR original investments , the offer documents has to be amended to make investors aware of loads at the time of investment.

Types of Mutual Funds Schemes in India

Wide variety of Mutual Fund Schemes exist to cater to the needs such as financial position, risk tolerance and return expectations etc. The table below gives an overview into the existing types of schemes in the Industry.

TYPES OF MUTUAL FUND SCHEMES

• By Structure

o Open - Ended Schemes

o Close - Ended Schemes

o Interval Schemes

• By Investment Objective

o

o Growth Schemes

o Income Schemes

o Balanced Schemes

o Money Market Schemes

• Other Schemes

o Tax Saving Schemes

o Special Schemes.

o Index Schemes.

o Sector Specific Schemes

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Article Tags: capital market instruments, financial goal, mutual fund, mutual funds



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