Mutual Fund History in India
What is a Mutual Fund?
A mutual fund is an investment product that pools money from people and later invests it in a vast variety of bonds, stocks, and other investments. All–together, they are managed by ‘Fund Managers’, who are experts at managing investments and money.
- Money pooled from different investors
- Managed professionally
- Well-regulated by SEBI
- Allowing to invest in small amounts
- High returns as compared to conventional investing
- Access to large portfolios
TYPES OF MUTUAL FUNDS
- Equity Funds: Equity funds signifies to invest the money from individual investors into shares of numerous companies. When the share price rises, the investors make a profit and vice-versa. Also, equity funds are suitable only for those who are willing to stay invested for a long-time and have a higher risk-appetite.
- Debt Funds: Debt funds invest in fixed income government securities like bonds, reputed corporate deposits, or treasury bills. It is less risky as compared to equity funds. Debt funds are suitable for those who are risk-averse and looking at a short-investment horizon.
- Hybrid or Balanced Funds: As the name says, Balanced funds invest in both fixed income and equity funds to balance the risks and maintain a certain return rate.
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History of Mutual Funds
Professor K Geert Rouwenhorst stating in ‘The Origins of Mutual Funds’, that the origin of pooled investing concept dated back in the era of 1700 in Europe, when a Dutch merchant & broker invited subscriptions from different investors just to form a trust for providing an opportunity to diversify for small investors with limited means of the necessity. This concept got closer to the US shores in the era of 1800.
The enactment of two British Laws – The Joint Stock Companies Acts of 1862 & 1867, allowed investors to share-in the profits of an investment enterprise & limited investor liability to the total amount of investment capital given to the enterprise. Thereafter in a short time span in 1868, the Foreign & Colonial Government trust was formed in London.
The Mutual Fund Industry in India
The mutual fund industry in India was started in the year 1963 with the formation of ‘Unit Trust of India’ (UTI) with the initiative of the Reserve Bank of India 9RBI) & the Government of India. The main objective is to attract small investors & introducing them to market investments.
WHY MUTUAL FUNDS?
Mutual funds offer various benefits and features as an investment method, therefore, making it the lucrative investment option. As such there are no disadvantages of mutual funds, but pros are given below to make your understanding better. Here:
- Expertise Money Management: Often investors don’t have the time or expertise to decide which fund is good to invest. A mutual fund company has professional fund managers to manage the money pooled in the selected funds. They decide which company sectors/stocks or shares to invest the money. Precisely, the decision will be in the interest of the investor.
- Low Cost: Mutual funds turn out to be an affordable investment option for those who don’t have the wish to make a large investment. Fund houses charge a certain fee, called expense ratio, somewhere from 0.5% – 1.5%, and cannot exceed 2.5% as per SEBI. But with Gulaq, there is ZERO commission, fees and charges.
- Lock-in-Period: It differs for every mutual fund. For once, ELSS deals with the shortest lock-in-period i.e. 3 years. The longer the holding period, the better returns are consumed and vice-versa. For open-ended mutual funds, they don’t have lock-in-period; you can close and withdraw anytime.
- SIP Option: If you are not in a favor of doing lumpsum investment, you can invest in small instalments known as SIP, it fosters financial discipline in investors. You can start with INR 500 to make your initial instalment with Gulaq.
- Goals and Focus: Everyone has a financial goal, it could be a long-term goal like retirement or a short term goal as an international vacation. Also, different schemes focus on different outcomes and assets with varying risk-factors. This makes it easier for investors to drive money to different asset classes as per their goals and risk-appetite.
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*Disclaimer: investment in securities market are subject to market risks, read all the related documents carefully before investing