With the process of economic liberalization and globalization of Indian economy, the interest rates have fallen, even though they are still higher as compared to Western standards. While the move has brought sizable gains to the corporate sector it has also affected a sea-change in the profile of the average risk adverse small investor to whom returns from fixed income securities including income from bank deposits, have been a main source of supplementing his modest means. He has to turn to equity for increasing return on capital.
The individual investor has neither the professional expertise nor adequate funds to participate directly in the stock market funds. On the other hand, increasing need is being perceived for a higher degree of professionalism with sophisticated techniques being adopted for assessing the market mechanism. The entry of foreign institutional investors (FIIs) has imparted buoyancy to the capital market but that has led to the small investor finding it all the more difficult to cope with the complexities of its operations. After the abolition of Controller of Capital issue (CCI), SEBI has formulated various guidelines on capital issues including proportionate allotment of new shares. Under this arrangement, corporate get the major allotments in all issues. While only 25% of issued capital has been reserved for general category of public 20 percent issue has been reserved exclusively for Mutual Funds.
Advantages of Mutual Funds
Mutual funds promote the investment habit of the rural and semi urban areas and increase the proportion of investing public and of the shareholding population in India.
Mutual funds increase the mobilization of investible funds of the community by pooling the resources of a large number of small savers for corporate investment.
Mutual funds reduce the risk of shareholding for the holders, by evolving schemes suitable to the preferences of the saver looking for their income/capital giants.
Mutual funds develop the expertise by establishing a professionally managed structure which would look after the requirements of the investing public for gainful and low-risk investment.
Type of mutual funds
As per the guidelines, there are types of Mutual funds permitted by the government.
*Capital market mutual funds
*Money market mutual funds
*Offshore investments
Types of scheme ————————- feature of the scheme
- Growth schemes —————- growth of capital is given importance
- Income scheme —————– income with assured return-periodically may be monthly or quarterly.
- Income cum growth scheme — schemes assure both income and growth
- Tax planning scheme ———– with a lock in period of 3 years, equity investment schemes are formulated.
- Special schemes —————– certain schemes are devised liking to insurance, housing finance, etc.