Mutual Funds in Current Economy


N. Viswanadham
Asst. Professor
Department of Management Studies
Pydah College of Engg. & Tech.
Gambheeram, Visakhapatnam

Mutual fund is a mechanism for pooling the resources by issuing units to the public and investing funds in securities in accordance with objectives as disclosed in the offer document.

The concept of mutual funds was introduced in India with the formation of Unit Trust of India in 1963. The government of India set up Unit Trust of India in 1963 by an act on parliament. UTI functioned under the regulatory and administrative control of the Reserve Bank of India till 1978.The first scheme launched by UTI was the now infamous Unit Scheme 64 in 1964. UTI continued to be the sole mutual fund until 1987, when some public sector banks and Life Insurance Corporation of India and General Insurance Corporation of India set up mutual funds. It was only in 1993 that private players were allowed to open shops in the country. Today, 32 mutual funds collectively manage Rs 6713575.19 cr under hundreds of schemes.

In 1995, the RBI permitted private sector institutions to set up Money Market Mutual Funds (MMMFs). Private institutions can invest in treasury bills, call and notice money, commercial paper, commercial bills accepted/co-accepted by banks, having unexpired maturity upto one year.

The industry has steadily grown over the decade. The mutual fund collects money directly or through brokers from investors. The money is invested in various instruments depending on the objective of the scheme.

The flow chart below describes broadly the working of a mutual fund:

Mutual Fund Operation Flow Chart


  • By Structure
    • Open - Ended Schemes
      Close - Ended Schemes
      Interval Schemes

  • By Investment Objective
    • Growth Schemes
      Income Schemes
      Balanced Schemes
      Money Market Schemes

  • Other Schemes
    • Tax Saving Schemes
      Special Schemes
      Index Schemes
      Sector Specific Schemes

By Structure

Open–ended funds: Investors can buy and sell units of open-ended funds at NAV-related price every day

Close-ended funds: These funds have a stipulated maturity period, which may vary from three to 15 years.

Interval Funds: These funds combine the features of both open and close-ended funds.

By Investment objective

Balanced funds: The objective of balanced funds is to provide growth along with regular income.

Money market funds: These funds strive to provide easy liquidity, preservation of capital and modest income

Growth funds: Growth schemes are ideal for investors with risk appetite.

Income funds: They generally invest their corpus in fixed income securities like bonds, corporate debentures, and government securities.

Other schemes

Index funds: Index Funds invest their corpus on the specified index such as BSE Sensex, NSE index, etc

Sector specific schemes: These funds invest only specified sectors like an industry or a group of industries

Tax saving schemes: Tax saving schemes or equity-linked savings schemes offer tax rebates to investors under section 88 of the Income Tax Act.

Special schemes: These schemes invest only in the industries specified in the offer document.


Affordability: Mutual funds allow you to start with small investments.

Convenience: Mutual funds offer tailor-made solutions like systematic investment plans and systematic withdrawal plans to investors

Cost effectiveness: A small investor will find that a mutual fund route is a cost effective method. AMC fee is normally 2.5%

Professional management: The major advantage of investing in a mutual fund is that you get a professional money manager for a small fee.

Diversification: A mutual fund can effectively diversify its portfolio because of the large corpus

Liquidity: You can liquidate your investments anytime you want.

Transparency: Mutual funds offer daily NAVs of schemes, which help you to monitor your investments on a regular basis.


Cost factor

Your risk capacity

Your objective

Fund Manager's track record

Major Mutual Fund Companies in India

1. ABN AMRO Mutual Fund

ABN AMRO Mutual Fund was setup on April 15, 2004 with ABN AMRO Trustee (India) Pvt. Ltd. as the Trustee Company.

2. Birla Sun Life Mutual Fund

Birla Sun Life Mutual Fund is the joint venture of Aditya Birla Group and Sun Life Financial.

3. Bank of Baroda Mutual Fund (BOB Mutual Fund)

Bank of Baroda Mutual Fund or BOB Mutual Fund was setup on October 30, 1992 under the sponsorship of Bank of Baroda.

4. HDFC Mutual Fund

HDFC Mutual Fund was setup on June 30, 2000

5. HSBC Mutual Fund

HSBC Mutual Fund was setup on May 27, 2002

6. ING Vysya Mutual Fund

ING Vysya Mutual Fund was setup on February 11, 1999 with the same named Trustee Company.

7. Prudential ICICI Mutual Fund

The mutual fund of ICICI is a joint venture with Prudential Plc. of America, one of the largest life insurance companies in the US of A. Prudential ICICI Mutual Fund was setup on 13th of October, 1993

8. Sahara Mutual Fund

Sahara Mutual Fund was set up on July 18, 1996 with Sahara India Financial Corporation Ltd.

9. State Bank of India Mutual Fund

State Bank of India Mutual Fund is the first Bank sponsored Mutual Fund to launch offshore fund, the India Magnum Fund with a corpus of Rs. 225 cr.

10. Tata Mutual Fund

Tata Mutual Fund (TMF) is a Trust under the Indian Trust Act, 1882. The sponsorers for Tata Mutual Fund are Tata Sons Ltd., and Tata Investment Corporation Ltd.

11. Kotak Mahindra Mutual Fund

Kotak Mahindra Asset Management Company (KMAMC) is a subsidiary of KMBL.

12. Unit Trust of India Mutual Fund

UTI Asset Management Company Private Limited, established in Jan 14, 2003.

13. Reliance Mutual Fund

Reliance Mutual Fund (RMF) was established as trust under Indian Trusts Act, 1882. The sponsor of RMF is Reliance Capital Limited and Reliance Capital Trustee Co. Limited is the Trustee. It was registered on June 30, 1995 as Reliance Capital Mutual Fund which was changed on March 11, 2004.

14. Standard Chartered Mutual Fund

Standard Chartered Mutual Fund was set up on March 13, 2000 sponsored by Standard Chartered Bank.

15. Franklin Templeton India Mutual Fund

The group, Frnaklin Templeton Investments is a California (USA) based company with a global AUM of US$ 409.2 bn. (as of April 30, 2005). It is one of the largest financial services groups in the world.

16. Morgan Stanley Mutual Fund India

Morgan Stanley Investment Management (MISM) was established in the year 1975. It provides customized asset management services and products to governments, corporations, pension funds and non-profit organizations

17. Escorts Mutual Fund

Escorts Mutual Fund was setup on April 15, 1996 with Excorts Finance Limited as its sponsor.

18. Alliance Capital Mutual Fund

Alliance Capital Mutual Fund was setup on December 30, 1994 with Alliance Capital Management Corp. of Delaware (USA) as sponsored.

19. Benchmark Mutual Fund

Benchmark Mutual Fund was setup on June 12, 2001 with Niche Financial Services Pvt. Ltd. as the sponsorer and Benchmark Trustee Company Pvt. Ltd. as the Trustee Company. Incorporated on October 16, 2000

20. Canbank Mutual Fund

Can bank Mutual Fund was setup on December 19, 1987 with Canara Bank acting as the sponsor.

21. Chola Mutual Fund

Chola Mutual Fund under the sponsorship of Cholamandalam Investment & Finance Company Ltd. was setup on January 3, 1997.

22. LIC Mutual Fund

Life Insurance Corporation of India set up LIC Mutual Fund on 19th June 1989. It contributed Rs. 2 Crores towards the corpus of the Fund. LIC Mutual Fund was constituted as a Trust in accordance with the provisions of the Indian Trust Act, 1882.

23.GIC Mutual Fund

GIC Mutual Fund, sponsored by General Insurance Corporation of India (GIC), a Government of India undertaking and the four Public Sector General Insurance Companies, viz. National Insurance Co. Ltd (NIC), The New India Assurance Co. Ltd. (NIA), The Oriental Insurance Co. Ltd (OIC) and United India Insurance Co. Ltd. (UII)

A mutual fund is a pool of money, collected from public and is invested according to certain investment objectives.  A mutual fund is created when investors put their money together.  It is therefore a pool of investor's funds.  The most important characteristics of mutual funds are the contribute and the beneficiaries of the fund are the same class people, namely the investors.  The term mutual fund means that investors contribute to the pool, and also benefit from the pool.  They are no other claimants to the funds the pool of funds held mutually public is the mutual fund.

A mutual fund business is to invest the funds thus collected according to the wishes of the investors who create the pool.  In many markets these wishes are articulated as "investment mandates".  The investors share in the funds is denominated by "funds".

N. Viswanadham
Asst. Professor
Department of Management Studies
Pydah College of Engg. & Tech.
Gambheeram, Visakhapatnam

Source: E-mail September 08, 2007


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