The term mutual fund can be related to a form of trust that gathers and deposits investor’s money who share the initial aim of attaining a common financial goal. With regard to the main objective of investment, they further classify their takings into the different asset classes. Or otherwise say, this is a financial intermediary that professionally manages the pooled money assembled from a large number of clients.
- Is the professional dealer of associated mutual funds.
- Take important decisions with respect to the security choosing and proportional amount placing even though these decisions abide by strict guidelines and scheme model which are unique to the firm.
By doing so, they provide the revised economic scale benefits to the investors and thus enhance them with purchasing traded stocks or bonds at the much lower potential cost compared to directly involved in capital markets. In addition to this, one receives capital units proportionate to the share of money deposited by him. These units are a fine representation of scheme oriented asset ownership and liability with regard to loss limited to deposit amount.
- The power of resource pooling is the biggest strength.
- Moreover, it offers small retailers the benefit of enjoying money management in the most professional manner and also lends the possibility to access otherwise impossible markets. This is all because of the small money deposit in the different mutual fund schemes.
- Additionally, they offer a variety of purposeful fund scheme patterns for investment and so guide the client with choosing the right option for his investment.
Depending on the diversity in deposit objectives, the schemes can be broadly classified into asset-based fund categories like Balanced, Equity, Gilt, Bond, Liquid and so many more types of funds. Further subdivisions also exist in the form of mid-cap, sector, index, small-cap varieties of funds.
A few examples of mutual fund scheme
There are some schemes which are associated with the provision of providing protection for the risk-hesitant clients’ capital, whereas some other types provide with a scheme of investing in mid and small proportions for the market assets and thus encourage the aggressive clients by providing capital appreciation.
Setting up The Mutual Funds: This is basically a trust formed with the support of personalities like
- A Sponsor or their group responsible for establishing registrations and promoting the firm
- Trustees entrusted with the duty of holding properties for the unitholders
- The AMC or Asset Management Company that deals with the effective management of deposited funds and securities.
- And finally, the registered Custodian who confidentially keep hold of the various security schemes within his custody
It a must factor that, at least three-fourths of the board members should be independent and should never be on the sponsors’ board of the firm.