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Mutual Fund Investment

INTRODUCTION:Mutual fund is the company or corporation formed to invest, ordinarily in diversified securities, the funds that it obtains from its shareholders. Investment of funds in these companies by the individuals, groups or the organization is called mutual fund investment. With the liberalization of the economies, mutual fund market is also increasing. Mutual funds are regulated by the Investment Company Act of 1940, which defines, among other things, the responsibilities of mutual fund companies to the public and requirements regarding financial reporting, governance and fiduciary duties. Mutual fund managers have a substantial presence in the securities markets as they trade and manage the securities within the funds they oversee.FACTORS AFFECTING MUTUAL FUNDS:All mutual fund schemes are subjected to the market risk as the prices of such schemes are controlled by the market forces like fluctuation in the Global stock exchanges like Newyork Stock Exchange & Tokyo Stock Exchange,Global prices of Petroleum & petroleum products, Central Bank?s annual Interest policies, market regulator?s guidelines for all the mf companies, annual financial results of the parent organizations etc. SCOPE & GROWTH OF MUTUAL FUNDS IN INDIA:The government of INDIA with the view to promote small investors in mutual fund schemes with the maximum security of the investors? money set up UNIT TRUST OF INDIA in the year 1968. The various schemes of the UTI like US-32, US-64 has been very popular among the small investors. In almost all the mf schemes of the UTI, there are guaranteed returns of interests on some amount of investments and interests on the rest amount are flexible. After year1987, several PSU Banks and Pvt. Insurance companies started their own mutual fund companies in the country like Kotak Mahindra, Bajaj Capital, Franklin Templeton, ICICI prudential, LIC, SBI, HDFC mutual funds etc. In India securities Exchange board of India regulates all the activities of mutual funds in the capital market. Unlike the share market, the returns on the investors? money & the level of risk in the mutual fund market are low. According to the Mutual Fund experts, investors? money are invested into the shares and debentures of many companies so that the market risks becomes low. According to the mutual fund amendment act of 1995, if the dividend on any of the schemes exceeds Rs.10, 000 then an income tax at the rate of 15% is levied on the source. The dividend earned upto Rs.15, 000 per year on any mutual fund scheme are exempted from tax under the section 80L of IT act. If we see the history of mutual funds in India during past 10-15 years, then it is clear that those MF companies who launched their schemes during the booming period of share market, suffered severe losses and as a results their units are sold at their Net assets values (NAV) price which are less than their original price. During the recession period, many of the mutual funds units are available for sale at less than their NAV prices. Country?s largest mutual fund company UTI has restructured its various schemes including US- 64 on the recommendation of the Parekh Committee. It has made all its schemes, old and existing NAV based so that the investors do not suffer heavily due to poor show of the scheme during any quarter. Upto November 03, 2006,the total investment made by the indigenous MF companies in the equity fund is about $ 3 billion. Some MF companies under Equity linked Savings Schemes (ELSS), also provides tax relief to the investors up to Rs. 33,600/- per annum under Section 80C of IT act.Mutual fund business has grown tremendously during past 3 decades. In 1980, there were just 15 funds and 150,000 shareholder?s accounts. By 2005, there were 264 funds and 5 million shareholders accounts. TYPES OF MF SCHEMES:There are mainly three types of mutual fund schemes:1) EQUITY FUNDS: The investments of these schemes are placed in the stock markets and based upon the good performances of the schemes, investors can get the maximum yields on his investments . However they are also exposed to the volatility and attendant risks of stock markets like equity linked savings schemes.2) DEBT FUNDS: Under this category, the MF companies pay higher & regular dividends to the investors. e.g. Power Plus scheme of Birla Sun Life, Magnum Plus of SBI Mutual funds etc.

3) BALANCED FUNDS: Balanced fund is also known as hybrid fund. It is a type of mutual fund that buys a combination of common stock, preferred stock, bonds, and short-term bonds, to provide both income and capital appreciation while avoiding excessive risk.
CONCLUSION: No doubt mutual fund market has grown tremendously in India and abroad in the past few years. The businesses of the mutual funds have doubled in two decades i.e. from year1980 to year 2000. However, mutual funds schemes involve market risks and the investors should first read carefully the offer documents of the schemes before going for the purchase. According to the mutual fund analysts, small investors should go in for the short-term MF schemes and invest in the multiple MF schemes to avoid the levels of risks and get the maximum possible dividends.

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