Introduction
In the financial growth of India, the Mutual funds industry has emerged as a powerful force, opening doors to the new avenues of wealth creation. Mutual funds have become the go-to choice not only for the seasoned investors but also for the newcomers because of their unique mixture of accessibility, diversification and professional management ushering in a new era of democratized wealth creation and financial inclusivity.
As on April 2023, India had a total of 15 crores of mutual fund folios. Every month around 12,000 to 13,000 Crores of investment are done through SIPs. As of May 31, 2023, the Assets Under Management (AUM) of India’s Mutual Fund Industry amounts to ₹43.20 trillion. It has seen 5 times growth in the span of 10 years.
As the popularity of mutual funds continues to soar, grasping its fundamentals becomes paramount for unlocking their full potential. So let’s explore the concept of mutual funds and their functioning.
Mutual Funds
Mutual Funds are investment vehicles that combine the funds of multiple investors to create a professionally managed portfolio consisting of a variety of assets. Examples of these assets include stocks, bonds, money market instruments, and other securities.
Individual investors can have access to a diversified portfolio by investing in a mutual fund rather than directly purchasing and managing individual securities.
Why Mutual Funds?
Mutual funds are opted by the majority of investors because of some obvious reasons.
Professional Management : Mutual funds are supervised by experienced fund managers who have in-depth knowledge in portfolio management, risk analysis, and market evaluation. They are responsible for selecting suitable securities and monitoring your portfolio on your behalf.
Diversification : Mutual funds do not invest all your money in only equity or only debt. It diversifies your folio by investing your corpus into equity, debts, bonds, money market instruments resulting in low risk.
Affordability : Starting an investment in mutual funds is possible with as little as ₹100. It is widely regarded as one of the most accessible and cost-effective investment options for investors.
Liquidity : One can buy and sell mutual funds on any business day. Mutual funds can be redeemed at current NAV at any time.
Parties involved in Mutual funds :
Investor : Investor is the person who invests his money into mutual funds by purchasing the units.
Asset Management Company (AMC) : The management of mutual funds is entrusted to these companies.
Fund managers : These are the experienced professionals appointed by the AMCs to make the investment decisions on behalf of the investors.
Custodian : Any institution or bank which holds and safeguards the securities owned by mutual funds is known as custodian.
Registrar and Transfer Agent (RTA) : RTA is basically any entity who keeps records of transactions of investors including purchasing and redeeming of shares and also updating investor details.
Distributors : Brokers, Financial advisors or any online platform that facilitates the sell and purchase of mutual funds are distributors.
Regulatory Bodies : Government or regulatory bodies that oversee and control the mutual fund industry, guaranteeing rule compliance and protecting investor interests.
Conclusion
In conclusion, mutual funds emerge as an alluring and accessible investment avenue, enabling individuals to diversify their portfolios and reap the rewards of professional management. Equipped with a solid understanding of mutual fund fundamentals, individuals can embark on their investment journey with unwavering confidence, harnessing the potential for remarkable long-term financial growth and unwavering stability.
Let the power of mutual funds unlock a world of financial possibilities as you shape your future prosperity.
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