Market Update
Mutual Funds

Worldwide, the Mutual Fund, or Unit Trust as it is called in some parts of the world, has a long and successful history. The popularity of the Mutual Fund has increased manifold. In developed financial markets, like the United States, Mutual Funds have almost overtaken bank deposits and total assets of insurance funds. As of date, in the US alone there are over 5,000 Mutual Funds with total assets of over US $ 3 trillion (Rs.100 lakh crores).

In India, the Mutual Fund industry started with the setting up of Unit Trust of India in 1964. Public sector banks and financial institutions began to establish Mutual Funds in 1987. The Private sector and foreign institutions were allowed to set up Mutual Funds in 1993. Today, there are 36 Mutual Funds and over 200 schemes with total assets of approximately Rs. 81,000 crores. This fast growing industry is regulated by the Securities and Exchange Board of India (SEBI).

Why should your clients invest in Mutual Funds?

Having familiarised yourself with the industry, you need to know clearly the benefits that a Mutual Fund offers to your clients. The advantages of investing in a Mutual Fund are:

1. Professional Management: Your clients can avail of the services of experienced and skilled professionals who are backed by a dedicated investment research team which analyses the performance and prospects of companies and selects suitable investments to achieve the objectives of the Mutual Fund scheme.

2. Diversification: Mutual Funds invest in a number of companies across a broad cross-section of industries and sectors. This diversification reduces the risk because seldom so all stocks decline at the same time and in the same proportion. Your clients can achieve this diversification through a Mutual Fund with far less money than they can do on their own.

3. Convenient Administration: Investing in a Mutual Fund reduces paparwork and helps to avoid many problems such as bad deliveries, delayed payments and unnecessary follow up with brokers and companies. Mutual Funds save time and make investing easy and convenient.

4. Return Potential: Over a medium to long term Mutual Funds have the potential to provide a higher return as they invest in a diversified basket of selected securites.

5. Low costs: Mutual Funds are a relatively less expensive way to invest compared to directly investing in the capital markets because their benefits of scale in brokerage, custodial and other fees translate into lower costs for Investors.

6. Liquidity: In Open-ended schemes, your clients can get their money back promptly at net asset value related prices from the Mutual Fund itself. With close-ended schemes, you can sell your units on a stock exchange at the prevailing market price or avail of the facility of direct repurchase which some close-ended and interval schemes offer periodically.

7. Transparency: Your clients get regular information on the value of their investment in addition to disclosure on the specific investments made by the scheme, the proportion invested in each type of security and the fund manager's investment strategy and outlook.

8. Flexibility: Through features such as regular investment plans, regular withdrawal plans and dividend reinvestment plans, your Investors can systematically invest or withdraw funds according to their needs and convenience.

9. Choice of Schemes: Mutual Funds offer a variety of schemes to enable Investors to take advantage of opportunities not only in the equity, debt and money markets but also in specific industries and sectors.

10. Government Regulation: All Mutual Funds are registered with SEBI, and they function within the provisions of strict regulations designed to protect the interests of Investors. The operations of Mutual Funds are regularly monitored by SEBI.