What are Mutual Funds?

MUTUAL FUNDS : UTI had virtual monopoly in the field of mutual fund from 1964 to 1987.
After 1987, State Bank of India, Bank of India and other banks started their mutual funds.
After 1991 (due to economic liberalisation) many financial institutions started their mutual
funds (e.g., Kothari Pioneer Fund, CRB Capital Markets and so on). In brief, along with
UTI, many more mutual funds are now started for the benefit of small investors. They are
given recognition by RBI/SEBI. Mutual funds, in general, are popular among the investing
class. Moreover, practically all mutual fund organisations are successful in collecting
crores of rupees from the investing class. A mutual fund is formed by the coming together
of a number of investors who hand over their surplus funds to a professional organisation
to manage their funds.
The main function of mutual fund is to mobilise the savings of the general public and invest
them in stock market securities. At preset, there is diversion of savings of the middle class
investors from banks to mutual funds. The government has thrown the field open to the
private sector and joint sector mutual funds. The performance of mutual funds is showing
significant growth during 1998-99 and 99-2000. During 2000-01, the public sector and
private sector mutual funds (excluding UTI) mobilised resource worth ` 11,340 crores as
against 15,400 crores during 1999-00.
More than 63 mutual funds are operating in India. The popular mutual funds in India are as
noted below:
(1) HDFC Mutual Fund
(2) Birla Sun Life Mutual Fund
(3) Alliance Capital Mutual Fund
(4) Canbank Mutual Fund.
(5) Pioneer ITI Mutual Fund
(6) Standard Chartered Mutual Fund
(7) Templetion India Income Fund.
(8) Tata Mutual Fund.
(9) Sundaram Mutual Fund
(10) Kotak Mutual Fund.
Each mutual fund has different schemes for investment by interested investors. Each
scheme has its features and suitability to specific category of investors. It may be noted
that the investment schemes of mutual funds are open-ended. This means there is no
fixed maturity period. Secondly, the investment can be encashed at any time. The rate of
conversion into cash will be the market rate available on that day. The open-ended
schemes of mutual funds are popular due to these advantages.
Mutual fund is a financial intermediary which collects savings of the people for secured
and profitable investment. The entire income/ profits of mutual fund is distributed among
the investors in proportion to their investments. Expenses for managing the fund are
charged to the fund. The mutual funds in India are registered as trusts under the Indian
Trust Act. The trustees are appointed and they look after the management of the trust.
They decide the investment policy and give the benefit of professional investment through
such mutual funds. These funds are managed by financial and professional experts.
Naturally, the savings collected from small investors are invested in a safe, secured and
profitable manner. This gives good income to the fund and the investors are made party
for sharing such income.
In brief, small investors get many benefits (and that too without any botheration) due to the
formation of mutual funds in India. Mutual funds such as SBI Mutual Fund, LIC Mutual
Fund, Indian Bank Mutual Fund, 20th Century Mutual Fund, Shriram Mutual Fund, Tata
Mutual Fund, ICICI Mutual Fund, BOI Mutual Fund are popular as they offer various
services and benefits to the investing class. Moreover, ordinary investors do not have time,
expertise and patience to take independent investment decisions on their own. Even the
mutual funds started by public sector banks (e.g. Canara Bank) are equally popular among
the investors. Mutual Funds give wide publicity to their activities through press
advertisements in leading newspapers. UTI publishes such information on monthly basis in
the form of full page advertisement in the press.