There are various investment avenues. Right From Savings Bank account and Bank Deposits, one can invest in post office saving schemes, Corporate Bonds & Debentures, Public provident Fund, Govt. securities, RBI Bonds, Equity, Metals, immovable property and Mutual Funds.
Mutual Fund pools the savings of investors who share a common goal. The Money is then invested by Mutual Fund in capital market instruments. The income out of such investment is shared by its unit holders ( Investors ) in proportion of their respective holding. The main benefits of Investment through Mutual Fund are Diversification, expertise of professional Management and low cost of investment.
SEBI regulates the functioning of Mutual Funds. Mutual Funds dealing exclusively with money market instruments, have to be registered with RBI. Mutual Funds should be established as trust under the Indian Trusts Act. The actual management of the mutual fund is in the hands of Asset Management Company which is responsible to its respective Trust co. Mutual Funds are allowed to apply for allotment in public issues. They are also allowed to participate in derivatives segment for hedging their investments.
Mutual Funds are mainly of two types, viz. , Equity Mutual Funds and Debt related Mutual Funds. Equity Mutual Funds are those who invests primarily in Equity related instruments. Certain Funds are investing in particular sector only. They are called sector Funds. Debt related mutual funds invest in treasury bills, commercial papers, call money, Govt. securities and corporate Bonds and Debentures. Certain Mutual Funds are Hybrid. They invest in Equities as well as Debt market instruments in proposed proportion.
One can invest in Mutual Funds at any time, i,e. at initial stage ( Starting of the scheme ) or during ongoing period. Mutual Funds allot units to its holders ( investors ) depending upon its NAV ( Net Asset Value ). This NAV increases / decreases on day to day basis. It is disclosed in commercial dailies for all working days. Latest NAV is also available on web site of AMFI (Association of Mutual Funds in India ). In mutual fund investments generally two options are available viz., Dividend and Growth. Investor has a choice to decide to take Dividend as and when declared or to accumulate the return.
To encourage investment in Mutual Funds in general and in Equity Funds in particular, Govt. of India has given certain benefits to such investments. Accordingly , The investments made in Tax plan of any of the Mutual Funds are deductible up to Rupees one lakh along with other specified investments U /S . 80 C. Further Dividends declared by all the Mutual Funds are exempt in the hands of investors. Long term profit or gain is exempted again for the profit or gain derived by keeping the amount invested for more than a year.
Mutual Funds started functioning with the introduction of UNIT 64 Scheme by unit Trust of India in 1964. U T I was the only player in the industry upto 1987-88 when permission was granted to certain Banks to start Mutual Funds. After liberalization in 1991-92 private sector players were also permitted. Other Mutual Funds started in the year 2000 and Lotus Mutual Fund is the latest entrant in this field.
In March 1965, the total investment in Mutual Funds ( Unit 64 ) was Rs. 25 crores which moved up to Rs 5000 crores in 1987 and Rs 45000 crores in 1993. In 2003, it leaped to Rs 1,20,000 and by the end of March, 2007 it had crossed Rs 3,25,000 crores!!!