CHAPTER 2 INTRODUCTION OF MUTUAL FUND

CONTENT: INTRODUCTION MEANING CONCEPT HISTORY

INTRODUCTION
The one investment vehicle that has truly come of age in India in the past decade is mutual funds. Today, the mutual fund industry in the country manages around Rs. 41, 73, 000 corer (As of March, 2009) of assets, a large part of which comes from retail investors. And this amount is invested not just in equities, but also in the debt instruments. Mutual funds have emerged as a proxy for investing in avenues that are out of reach of most retail investors, particularly government securities and money market instruments. Specialization is the order of the day, be it with regard to a schemes investment objective or its targeted investment universe. Given the excess of options on hand and the hardsell adopted by mutual funds via for a piece of your savings, finding the right scheme can sometimes seem a bit difficult. Mind you, its not just about going with the fund that gives you the highest returns. Its also about managing riskfinding funds that suit your risk appetite and investment needs. So, how can you, the retail investor, create wealth for yourself by investing through mutual funds? To answer that, we need to get down to brass tackswhat exactly is a mutual fund?

MEANING
The meaning of Mutual Fund is very simple, a mutual fund is an investment vehicle that pools in the monies of several investors, and collectively invests this amount in either the equity market or the debt market, or both, depending upon the funds objective. This means you can access either the equity or the debt market, or both, without investing directly in equity or debt. It can briefly explained as: A mutual fund is a pool of assets invested on behalf of investors. Mutual funds invest in a diversified portfolio of securities, which can include enquiry securities (such as common and preferred shares), debt securities (such as bonds and debentures) and other financial instruments issued by corporations and governments, according to the stated investment objectives of the funds. Individual investors own a percentage of the value of the fund as represented by the number of units they purchase. `The sum up, mutual fund represent pooled savings of numerous investors invested by professional fund managers and diversified portfolio to obtain return on investments with least risk to investors.

Thus, the cycle of Mutual Fund are as follows :

Above figure described, a mutual fund is a pool of money that is invested in various securities and professionally managed by an investment manager. Return on Investment are depend on type of investment, like various funds.

CONCEPT OF MUTUAL FUND

A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is invested by the fund manager in capital market instruments such as shares, debentures and other securities. The income earned through these investments and the capital appreciations realized are shared by its unit holders in proportion to the number of units owned by them. Thus a Mutual fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost. The flow chart below describes broadly the working of a mutual fund.

Investors earn from a Mutual Fund in three ways:

I. II.

Income is earned from dividends declared by mutual fund schemes from time to time. If the fund sells securities that have increased in price, the fund has a capital gain. This is reflected in the price of each unit. When investors sell these units at prices higher than their purchase price, they stand to make a gain.

III.

If fund holdings increase in price but are not sold by the fund manager, the fund's unit price increases. You can then sell your mutual fund units for a profit. This is equivalent to a valuation gain.

All in all, benefits provided by them cut across the boundaries of investor category and thus create for them, a universal appeal.

HISTORY
There is an ambiguity about the fact that when and where the Mutual Fund Concept was introduced for the first time. According to some historians, the mutual funds were first introduced in Netherlands in 1822. But according to some other belief, the idea of Mutual Fund first came from a Dutch Merchant ling back in 1774. In 1822, that idea was further developed. In 1822, the concept of Investment Diversification was properly incorporated in the mutual funds. In fact, the Investment Diversification is the main attraction of mutual funds as the small investors are also able to allocate their little Funds in a diversified way to lower Risks. The history of mutual funds, date back to 19th century Europe, in particular, Great Britain. Robert Fleming set up in 1868 the first investment trust called Foreign and Colonial Investment Trust which promised to manage the finances of the moneyed classes of Scotland by spreading the investment over a number of different stocks. The investment trust and the other investment

trusts which were subsequently set up in Britain and the US, resembled todays close-ended mutual funds. The first mutual fund in the US, Massachusetts investors Trust, was set up in March 1924. The modern day mutual funds came into existence in 1924, in Boston. Massachusetts Investors Trust introduced the Modern Mutual Funds and the funds were available from 1928. At present this Massachusetts Investors Trust is known as MFS Investment Management Company. After the glorious year of 1928, Mutual fund ideas expanded to different levels and different regulations came for well functioning of the funds. Still today, the funds are evolving and improving in order to offer people much wider choices and better advantages for fulfillment of their various investment needs and financial objectives