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Mutual Fund
A mutual fund is an investment vehicle. It collects money from many investors and invests it with stated investment objectives. It is managed by a team of professionals. The profits or losses from these investments are then distributed to the investors proportionately post deduction of expenses and the applicable taxes.
There are different types of fund categories. The prominent one’s are Debt and Equity funds with different subcategories in both of them.
It is the simplest form of investing which caters to all needs and to all kinds of investors- small, big, and institutional investors.
For instance, it offers solutions from temporary parking of money for a few days to years to achieve long-term goals like retirement, etc in a tax-efficient manner.
Mutual funds are required to be registered with the Securities and Exchange Board of India (SEBI) which regulates securities markets before it can collect funds from the public.
How is a mutual fund set up?
A mutual fund is set up in the form of a trust, which has sponsor, trustees, asset management company (AMC) and custodian. The trust is established by a sponsor or more than one sponsor who is like promoter of a company. The trustees of the mutual fund hold its property for the benefit of the unitholders. Asset Management Company (AMC) approved by SEBI manages the funds by making investments in various types of securities. Custodian, who is registered with SEBI, holds the securities of various schemes of the fund in its custody. The trustees are vested with the general power of superintendence and direction over AMC. They monitor the performance and compliance of SEBI Regulations by the mutual fund.
SEBI Regulations require that at least two thirds of the directors of trustee company or board of trustees must be independent i.e. they should not be associated with the sponsors. Also, 50% of the directors of AMC must be independent. All mutual funds are required to be registered with SEBI before they launch any scheme.
Good investing isn’t necessarily about the highest returns, because highest returns tend to be one-off hits that can’t be repeated. It’s about earning pretty good returns that you can stick with and which can be repeated for longest period of time. That’s when compounding runs wild. – (Morgan Housel)