Mutual fund is like a basket of investments in which each participant holds their share of investment with a common objective. The money collected from this activity is then invested in the capital market. The whole financial operation is managed by a group of experts called fund managers. Net gain (or loss) realized from such investment process is distributed among the investors.
As depicted above, Mutual fund is a type of investment available for investors who are not in a position to invest directly in equity market because of low capital base, lack of knowledge or lack of time. Mutual fund, therefore, is most suitable for the common man as it offers an opportunity to invest in capital market at a relatively low cost without having to go through technical jargons of equity market.
Mutual fund investment process is shown in the diagram above. An investor invests in the mutual fund scheme by putting appropriate fund. Proceeds from this investment go to the fund manager who, in turn, invests that money in the capital market. The fund has a strong technical team that analyzes and makes prudent financial decisions including purchase as well as redemption of funds. At each stage, the profit (or loss) generated out of financial activity is apportioned to each investor of mutual fund.
Brief History:The mutual fund industry in India started in 1963 with the formation of Unit Trust of India, an initiative of the Government of India and Reserve Bank of India. The first scheme launched by UTI was Unit Scheme 1964. At the end of 1988 UTI had Rs. 6700 Cr. of Assets Under Management (AUM). In the year 1993, private sector funds came into existence that offered more options in the hands of investors.
Currently there are more than 30 mutual funds companies available in the market.