Mutual fund is one of the funds based financial services which provides the stock market
benefits to small investors. It is a concept, leading to attract the small investors to invest their
pooling of savings in a trusted as well as profitable manner. Mutual funds business becomes
very popular in developed countries and it is fast growing in developing countries like India
also. Mutual funds act as a link between the investor and the stock market. Now in India
mutual funds activities are performed by public, private and foreign sector financial institutions.
Origin of Mutual Funds
In the year 1822 the concept of mutual funds was found in Belgium. In 1868, foreign
colonial government trust was established in England to spread the risks in securities market.
Mutual funds concept was spread to USA and some of the mutual funds institutions were
established. Unit Trust of India was established in 1964 as a public sector mutual funds
institution by the central government. It is the first mutual fund in India.
Meaning of Mutual Fund
A mutual fund is an investment vehicle for investors who pool their savings for investing in
diversified portfolio of securities with the aim of attractive yields and appreciation in their
value. Mutual fund is a trust that attracts savings which are then invested in capital markets.
According to SEBI, mutual fund define is as a fund, established in the form of a trust to
raise money through the sale of units to the public or a section of the public under one or
more scheme for investing in securities, including money market instruments.
Investment company institute of the US defined mutual fund is a financial service
organisation that receives money from shareholders, invests it, earns return on it, attempts
to make it grow and agrees to pay the shareholders cash on demand for the current value
of his investment.
Advantages of Mutual Funds
Mutual fund consists of the following important advantages:
1. Attract small and medium group investors: Mutual funds promote savings
among the lower and middle income groups of investors because mutual fund
units are available with a single unit of Rs. 10 and multiples by the same value.
2. Attractive return: If the investor invests in mutual fund, they can get attractive
returns because mutual funds are linked with stock market. The benefits of stock
market goes to the mutual fund investors.
3. Reduce the risk: Mutual fund investments minimize the risk on investments by
diversifying the investments into various portfolios such as shares, debentures,
4. Assure return: Mutual funds are managed by experts in the field of investment
management; hence there is no risk and mutual fund offers assured return.
5. Tax concession: If the mutual funds belong to infrastructure development bonds,
there will be a tax concession to the mutual fund investment.
6. Liquidity: Mutual fund investment is one of the highly liquidity based investments
which can be recapitalized at any time or sold the mutual fund units at any time.
7. Convenience: Mutual fund investment is one of the most convenient investments
for those who want to invest or get back their investment through selling of
the units of mutual fund.
8. Flexibility: Mutual fund can be transfered from one scheme to the other scheme
on the basis of present market condition.
9. Benefits to minorities: Mutual fund investment schemes are most suitable to
the old age pensioners, widows middle class women, etc.
10. Contribution to the economy: Mutual fund companies promote the saving habits
of middle class people. Hence, the money invested in mutual fund schemes are
invested into the major economical activities like infrastructure development
construction of bridge, buildings, etc.