A Mutual Fund, as the name suggests, is a common pool of funds managed by a professional Fund Manager. It is a trust which collects money from people with common investment goals and invests them accordingly. The income earned from these investments is then distributed to the investors proportionately, post deduction of the expenses incurred and the taxes applicable.
In 1963, the Government of India and Reserve Bank of India (RBI) with an objective of turning India into a developed economy, initiated the creation of a strong financial market with widespread participation by Indians. This objective led to the birth of the first mutual fund – Unit Trust of India (UTI). It had a clear vision of encouraging people to save, invest and participate in the income or profits accruing to a Corporation. This could be done by acquiring, holding, managing and selling securities.
Over the years, the Mutual Fund industry went through a lot of stages of growth. From the initial phase of UTI to the entry of public sector mutual funds in 1987 to private sector joining the club in 1993 to the evolved markets of today. It is virtually impossible to imagine a diversified investment portfolio without including a few Mutual Fund schemes. Hence, understanding the functioning of a Mutual Fund is essential for all investors.