A mutual fund is an investment tool that pools money from many investors and invests it in stocks, bonds, and other securities. The document summarizes the history and growth of mutual funds in India from 1963 to the present in four phases. It describes the types of mutual funds including by maturity, investment objective, and advantages for investors such as portfolio diversification, professional management, reduced costs and risk, and liquidity.

1. MUTUAL FUNDS

2. What is Mutual Fund ?
A mutual fund is a pool of money, collected from
investors, and is invested according to certain investment
objectives. A mutual fund is created when investors put
their money together. It is therefore a pool of the
investor’s funds.

3. Growth of mutual funds in India
The mutual fund industry in India started in 1963 with the formation of
Unit Trust of India, at the initiative of the Government of India and Reserve
Bank.
Until 1987, UTI enjoyed a monopoly in the Indian mutual fund market.
Then a host of other government controlled Indian financial companies came
up with their own funds. These included State Bank of India, Canara Bank, and
Punjab National Bank.
The history of mutual funds in India can
be broadly divided into four distinct
phases:

4. First Phase – 1963-87
Unit Trust of India (UTI) was established on 1963 by an Act of Parliament. It
was set up by the Reserve Bank of India and functioned under the Regulatory
and administrative control of the Reserve Bank of India.
The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988
UTI had Rs.6,700 crores of assets under management.

5. Second Phase – 1987-1993 (Entry
of Public Sector Funds)
1987 marked the entry of non- UTI, public sector mutual funds set up by public
sector banks and Life Insurance Corporation of India (LIC) and General
Insurance Corporation of India (GIC).
SBI Mutual Fund was the first non- UTI Mutual Fund established in June
1987.

6. Third Phase – 1993-2003 (Entry of
Private Sector Funds)
With the entry of private sector funds in 1993, a new era started in the Indian
mutual fund industry, giving the Indian investors a wider choice of fund families.
In 1993 was the year in which the first Mutual Fund Regulations came into
being, under which all mutual funds, except UTI were to be registered and
governed.

7. Fourth Phase – since February 2003
In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI
was divided into two separate entities.
One is the Specified Undertaking of the Unit Trust of India with assets under
management of Rs.29,835 crores as at the end of January 2003.
The second is the UTI Mutual Fund Ltd, sponsored by SBI, PNB, BOB and
LIC. It is registered with SEBI and functions under the Mutual Fund Regulations.

8. Mutual Fund Operation
Flow Chart
Investors
Fund
Securities
Return
Given back to
Pool their money in
Which is invested inThat generates

9. TYPES OF MUTUAL FUNDS
Mutual
Funds
By Maturity
Period
By Investment
Objective
Equity
Income
Balance
fund
Money
market
Gilt fund
Index
fund
Close
ended
Open
ended

10. Schemes according to Maturity
Period
A mutual fund scheme can be classified into open-ended scheme
or close-ended scheme depending on its maturity period.
Open-ended Fund : An open-ended Mutual fund is one that is available for
subscription and repurchase on a continuous basis. These Funds do not have a
fixed maturity period.
Close-ended Fund : A close-ended Mutual fund has a stipulated maturity
period e.g. 5-7 years. The fund is open for subscription only during a specified
period at the time of launch of the scheme.

11. Fund according to Investment Objective
A scheme can also be classified as growth fund, income
fund, or balanced fund considering its investment objective.
Growth / Equity Oriented Scheme
The aim of growth funds is to provide capital appreciation over the medium to
long- term.
Such funds have comparatively high risks.
These schemes provide different options to the investors like dividend option,
capital appreciation, etc.

12. Income / Debt Oriented Scheme
The aim of income funds is to provide regular and steady income to investors.
Such schemes generally invest in fixed income securities such as bonds,
corporate debentures, Government securities and money market instruments.
Such funds are less risky compared to equity schemes
Balanced Fund
The aim of balanced funds is to provide both growth and regular income as such
schemes invest both in equities and fixed income securities in the proportion
indicated in their offer documents.
These are appropriate for investors looking for moderate growth.

13. Money Market
These funds are also income funds and their aim is to provide easy liquidity,
preservation of capital and moderate income.
These schemes invest exclusively in safer short-term instruments such as
treasury bills, commercial paper and government securities, etc.
These funds are appropriate for corporate and individual investors as a means to
park their surplus funds for short periods.

14. Gilt Funds
These funds invest exclusively in government securities.
Government securities have no default risk.
Index Funds
This schemes invest in the securities in the same weightage comprising of an
index.
This schemes would rise or fall in accordance with the rise or fall in the
index.

15. Advantages of mutual funds to
the Investors
Portfolio diversification
Professional management
Reduction in risk
Reduced transaction costs
Liquidity

16. Portfolio diversification: By offering readymade diversified portfolios, mutual
funds enable investors to hold diversified portfolios. Though investors can create
their own diversified portfolios, the costs of creating and monitoring such portfolios
can be high, apart from the fact that investors may lack the professional expertise to
manage such a portfolio.
Professional management: Mutual funds are managed by investment managers
(Asset management companies or AMCs) who are appointed by trustees and bound
by the investment management agreement, on the how's and whys of their
investment management functions. Investment managers and funds are also bound
by the AMFI code of ethics, which foster professional standards in the industry.
Reduction of risk: Mutual funds invest in a portfolio of securities. This means
that all funds are not invested in the same investment avenue. It is well known that
risk and returns of various investment options do not move uniformly or in
sympathy with one another. If the equity market is moving down, the debt markets
may be moving up. Therefore, holding a portfolio that is diversified across
investment avenues is a wise way to manage risk. When such a portfolio is liquid
and marked to market, it enables investors to continuously evaluate the portfolio
and manage their risks more efficiently.

17. Reduced transaction costs: Mutual funds provide the investor the benefit of
economies of scale, by virtue of their size. Though the individual investor's
contribution may be small, the mutual fund itself is large enough to be able to
reduce costs in its transactions. These benefits are passed on to the investors.
Liquidity : Most of the funds being sold today are open-ended. That is , investors
can sell their existing units, or buy new units, at any point of time, at prices that are
related to the to the NAV of the fund on the date of the transaction. This enables
investors to enjoy a high level of liquidity on their investments.

18. Conclusion
Different investment avenues are available to investors.
Mutual funds also offer good investment opportunities to the investors. Like all
investments, they also carry certain risks.
The investors should compare the risks and expected yields after adjustment of
tax on various instruments while taking investment decisions.
The investors may seek advice from experts and consultants including agents
and distributors of mutual funds schemes while making investment decisions.

19. REFERENCES
http://www.sebi.gov.in/faq/mf_faq.html
http://en.wikipedia.org/wiki/Mutual_funds_in_India
www.mutualfundsindia.com

20. THANK YOU
Authors:
Ashok
Hema
Ananya
Nirmal
Srinath
Ruban
Snegalatha