Mutual Funds Essay

INDUSTRY PROFILE

Mutual funds A mutual fund is a corpus of money that is pooled through subscriptions received from scores of retail and non retail investors. Since mutual funds collect money from several investors pool them together, they are organized into distinct pools with common investment objectives. Each scheme is managed by a professional fund manager who determines the investments that are most likely to achieve the stated objectives. The corpus of each scheme is divided into unit capital. Each unit is fungible and represents proportionate ownership of the scheme’s invested assets.

Each scheme can be of two types --- ‘open-end’ and ‘closed-end’. Open-end schemes are intended to be perpetual and the values of their units are determined

Mutual funds are usually set up under a three-prolonged structure. Setting up a mutual fund is an expensive legal exercise. Each mutual fund would have a sponsoring entity, known as the sponsor of the fund. The fund itself is constituted as a trust under the Indian Trusts Act 1881 wherein the unit holders are beneficiaries. The trust is safeguarded by a trustee company and the funds are managed by an asset management company. The share capital of the asset management company is mostly held by the sponsoring company of the mutual fund. Therefore the three entities, i.e. the sponsor, the asset manager and the trustee are the pillars of the structure of a mutual

These expenses are debited to the fund on an annual basis and become a cost to the unit holder. Similarly the trustee company or other constitution can charge a trusteeship fee to the fund. Other fees payable by the fund would be to service providers such as custodians, legal, audit and tax services.

Regulation of Mutual Funds

In India, mutual funds are governed by the securities and Exchange Board of India Regulations 1996. All mutual funds constituted in India have to be compulsorily registered with SEBI. While granting registration, SEBI considers the standing and past track record the sponsor. Some of the main provisions of the regulations are as follows:

• There are broadly two types of domestic mutual funds---- (a) those that invest exclusively in the money market and (b) those that invest exclusively in the capital market or primarily in the capital market and partly in the money market as may be found profitable. The first category of funds is regulated by the RBI under a separate set of guidelines and not by SEBI. The second type of mutual funds is regulated by