A mutual fund is a scheme in which several people invest their money for
a common financial cause. The collected money invests in the capital
market and the money, which they earned, is divided based on the number
of units, which they hold. The mutual fund industry started in India in a
small way with the UTI Act creating what was effectively a small
savings division within the RBI. Over a period of 25 years this grew
fairly successfully and gave investors a good return, and therefore in
1989, as the next logical step, public sector banks and financial
institutions were allowed to float mutual funds and their success
emboldened the government to allow the private sector to foray into this
area.
The advantages of mutual fund are professional management,
diversification, economies of scale, simplicity, and liquidity. The
disadvantages of mutual fund are high costs, over-diversification,
possible tax consequences, and the inability of management to guarantee a
superior return.
The biggest problems with mutual funds are their costs and fees it
include Purchase fee, Redemption fee, Exchange fee, Management fee,
Account fee & Transaction Costs. There are some loads which add to
the cost of mutual fund. Load is a type of commission depending on the
type of funds.
Mutual funds are easy to buy and sell. You can either buy them directly
from the fund company or through a third party. Before investing in any
funds one should consider some factor like objective, risk, Fund
Manager’s and scheme track record, Cost factor etc.
There are many, many types of mutual funds. You can classify funds based Structure (open-ended & close-ended), Nature (equity, debt, balanced), Investment objective (growth, income, money market) etc.
A code of conduct and registration structure for mutual fund
intermediaries, which were subsequently mandated by SEBI. In addition,
this year AMFI was involved in a number of developments and enhancements
to the regulatory framework.
The most important trend in the mutual fund industry is the aggressive
expansion of the foreign owned mutual fund companies and the decline of
the companies floated by nationalized banks and smaller private sector
players. People want to invest in this institution because they know
that this institution will never dissatisfy them at any cost. You should
always keep this into your mind that if particular mutual funding
scheme is on larger scale then next time, you might not get the same
results so being a careful investor you should take your major step
diligently otherwise you will be unable to obtain the high returns.