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ROLE OF MUTUAL FUNDS IN RETAIL INVESTMENT

By: Sakshi Gupta 45-MBA-2012 Management of Financial Services

The money thus collected is then invested in capital market instruments such as shares. like the capital appreciation and dividend earning. debenture. the main aim of the fund manager is to taking the scrip that is under valued and in future will rise. based on the trust who invests the savings of a number of investors who share a common financial goal.  Mutual fund is the most suitable investment for the common man as it offers an opportunity to invest in diversified portfolio management.professionally managed Indian stock as well as the foreign market. then fund manager sell out the stock.  . and foreign market.MUTUAL FUNDS Mutual fund is the pool of the money.

. . It is essentially a mechanism of pooling together the savings of a large number of investors for collective investments with an objective of attractive yields and appreciation in their value. Mutual Fund is a non fund based special type of institution.

The expense ratio (which is not more than 2. Mutual fund schemes are offered to investors for the first time through a New Fund Offering (NFO). A feature of mutual fund schemes is the low minimum investment amount – as low as Rs. 1. This makes it possible for small investors to invest.05% in some schemes)being low also helps in making mutual funds a good instrument for building wealth over the long term. and goes below 0. retail. They offer different kinds of schemes to cater to various types of investors.000 for some schemes.5% in many schemes. .  Mutual Funds are a vehicle for retail and institutional investors to benefit from the capital markets. companies and institutions.

 Also known as an "individual investor" or "small investor".  . and not for another company or organization.  Retail investors buy in much smaller quantities than larger institutional investors.WHO ARE RETAIL INVESTORS? Individual investors who buy and sell securities for their personal account.

For this reason. which account for most of the market's trading volume.   . many retail investors tend to regard institutional ownership of a security as a sign of approval and are easily influenced by institutional trading activity. institutional shareholders. Not only do retail investors make smaller trades. they also tend to trade less frequently than institutional investors. Retail investors typically exert less influence over corporate decisions than larger. However. the widening use of online trading and better access to financial information has increased the number of retail investors in recent years. As opposed to institutional owners. small investors seldom have access to corporate boardrooms or discussions and rarely have the opportunity to meet personally with a company's executives.

 . The different share classes are likely to have different expense ratios. redemption fees. and sales loads. Sometimes.Sometimes. many mutual funds decide to create different share classes for the same investment portfolio. there is even a mid-tier class of shares. pension plans.  Instead of offering two different mutual funds. which wouldn't be efficient. minimum investments. One class might appeal to retail investors and one class might appeal to institutional investors. and non-profits ("institutional" investors). a mutual fund wants to make itself appealing to both "retail" investors as well as big corporations.

Hence. It is widely believed that MF is a retail product designed to target small investors. During the third phase (1992 hence) the industry was thrown open   . but with the then existing boom condition. At the retail level. salaried people and others who are intimidated by the stock market but. the globalisation and liberalization measures announced by the government led to a paradigm shift in the mind set of investors and the capital market environment became more unfriendly to retail investors. though UTI could do this nearly for three decades (1964-1987) due to its monopoly in the industry. the public sector banks and financial institutions entered the field. designing a general product and expecting a good response will be futile. nevertheless. They had no other choice but to turn to MFs to reap the benefits of stock market investing. investors are unique and are a highly heterogeneous group. Hence. like to reap the benefits of stock market investing. In the second phase of oligopolistic competition (1987-1992). it was a smooth sailing for the industry. Further. the need to be innovative in designing the product was not felt and investors had to choose from among the limited schemes offered.

Investors are no longer expected to come to grief by falling prey to misleading and motivating headline leads and tips.MUTUAL FUND INVESTMENT  Making investments is not a full time assignment of investors. diversification and liquidity of units ensured in mutual funds minimise the risk. an essential benefit that one acquires is professional management of the money he puts in the fund. When investor buys mutual fund scheme. By investing in many companies the mutual funds can protect themselves from unexpected drop in value of some shares.   . Risk in investment is as to recovery of the principal amount and return on it. The expert supervision. Mutual fund investments on both fronts provide a comfortable situation for investors. A sound investment policy is based on the principle of diversification which is the idea of not putting all the eggs in one basket. if they invest in mutual funds. So they can hardly have a professional attitude towards their investment.

Mutual funds have to broadly follow the laid down provisions for their regulation. Mutual fund investing eliminates the need for retail investors. under section 88. Better investment diversification is available for larger. Mutual fund family allows investors to switch over from one fund to another e. tax rebate up to twenty per cent of investment made in specified schemes of mutual funds(up to Rs. investors can switch from income scheme to growth scheme or vice-versa or say from close ended scheme to open ended schemes as the investors opt.000) is available. portfolios .g. legislation in a country (like SEBI in India and Securities Exchange Commission (SEC) in USA) also provides for the safety of investments. to perform detailed securities analysis and make it possible for individuals to own broadly diversified portfolios of professionally managed assets with a minimal initial investment. These agencies act as watchdogs and attempt wholeheartedly to safeguard investor interests.10. but still relatively small.    Besides depending on the expert supervision of funds managers. In India for equity linked schemes of mutual funds. Mutual funds provide investors flexible investment opportunities. Income from mutual funds dividends is exempted from tax at present. Such provisions vary from country to country and time to time. Many schemes of mutual funds provide tax shelter.

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