Mutual funds are collective investments that are professionally managed by an expert. Its introduction in India took place when the Government launched the Unit Trust of India (UTI) in 1963.
This article has a thorough and elaborate discussion on mutual funds for UPSC and other competitive exams. Candidates must also learn about the Non-Banking Financial Institutions in the country at the linked article.
IAS aspirants can find the details discussed further below in this article relevant to UPSC exam preparation.
|
Preparing for the upcoming civil services exam? Complement it with the links given below: |
What Is a Mutual Fund?
A Mutual fund is a pool of investments by different investors in securities such as debt, equity or both. In simple words, it collects funds from investors like individuals and institutions and invests them in bonds, stocks or other short-term investment plans.
Generally, a fund manager oversees this fund and charges a minimal amount called expense ratio for the same. Besides, the Securities and Exchange Board of India or SEBI regulates and moderates the mutual funds industry like security markets.
Types of Mutual Funds
These funds are categorised into several types depending on return, risk, time horizon, size, and other factors. Below are 5 significant categories of funds:
- Equity Funds
- Hybrid Mutual Fund
- Debt Mutual Funds
- Fixed-Income Funds
- Solution-Oriented Mutual Funds
These are direct investments in shares that possess high risk in long term investments but obtain an optimum return in the long run. Experts further divide it into small, mid and large-cap based on a company’s size. Investors with a high-risk appetite usually opt for these types of investments.
Its other name is exchange-traded funds (ETFs) which invest in a mix of multiple investments in bonds and stocks. Hybrid mutual funds invest both in debt and equity. However, investors must choose a scheme considering their risk appetite.
These are investments in debt securities that help investors achieve their short-term investment goals. Debt mutual funds are usually low in risk and provide moderate returns. Further, there are 16 subdivisions under these funds.
These funds include government bonds, corporate bonds, or other debt instruments that provide fixed income to investors. Therefore, these are appropriate for investors who opt for lower risks. The investors receive the interest income from the fund manager in such types of funds.
Solution-oriented mutual funds are goal or solution-specific investments. For example, such goals can be a child’s education or retirement plans. Therefore, one must invest in such funds for a minimum of 5 years.
Given below are a few other related links:
Benefits of Mutual Funds
Following are some essential benefits of mutual funds:
- Investors can diversify their funds into several securities, such as debt and equity, which help lower the risk.
- There is no entry load to invest in mutual funds.
- Investors possess complete transparency on several investments of their money.
- They can also withdraw their investment partially or entirely depending on their requirements.
- Investors obtain expert management and advice to take care of their funds.
- Mutual funds provide flexibility in switching between funds.
- Investors attain tax benefits by investing their money in securities.
Importance of Mutual Funds in Economic Progress
Mutual funds, like other security investments, can be an instrument of economic development. Below are some pointers on how it helps in it:
- A mutual fund helps accumulate money for investment purposes which stimulate industries in the economy.
- It channelises and deploys the public’s small savings in the economy through investments.
- In addition, it defies the age-old idea of keeping cash in the house.
- It helps in capital accumulation for developing countries like India to support development.
- A mutual fund also plays a crucial role in creating an investment-friendly environment in India.
- Lastly, it is essential to generate employment.
These are all essential details on mutual funds for UPSC and other vital examinations. Aspirants can use this note on this topic to amplify their preparations.
The economy of India covers an important part of the UPSC Syllabus.
For the best preparation strategy for competitive exams candidates can visit the linked article and get detailed study material and preparation tips to excel in the examination.
Other Related Links:
Frequently Asked Questions on Mutual Funds
What is the regulatory body for mutual funds?
Securities and Exchange Board of India is a statutory body, established in 1992, regulating mutual funds and India’s capital market.
What is an expense ratio?
The expense ratio is the sum of expenses involved in a mutual fund scheme. It calculates the per-unit cost of fund management that the fund house charges from investors. Generally, it stays between 1.5% to 2.5% of the scheme’s net assets in a week.
Comments