Mutual funds are financial investment instruments in which a number of investors pool in their investments and this pooled investment is then invested in various opportunities such as stocks, bonds and more. Mutual funds are offered by various bank and financial institutions and are managed by in-house fund managers of these institutions. By investing in a mutual fund an investor becomes a unit holder of the said mutual fund. Unit is identical to a stake thus becoming a unit holder is equivalent to becoming a share holder in the said mutual fund. The returns which the investor is going to draw will depend upon the performance of the fund which in turn will depend upon the investments, asset and portfolio choices that the fund manager would have made. The value of the fund fluctuates on a daily basis depending upon the fluctuations of the market value of the investments made. An investor can keep track of the net asset value of the mutual fund online or through media.
How mutual funds work
There are various types of mutual funds available in the market today. It is but understood fact that the greater the risk the higher the returns. This also holds true in case of mutual funds, the funds that pay-out higher returns are more risker in nature and they invest a big percentage of their funds in high return but volatile options such are stock market and more. Mutual funds are one of the best if not the best way to invest in the equity market hence it is no surprise that the popularity of Mutual funds has grown over the last decade and is steadily growing even today. Mutual funds are very flexible in nature and can be existed as per choice of the investor by liquidating his units. Although the returns from mutual funds are best when an investor stays invested for a longer period of time. To choose an ideal mutual fund, one can check past performance of the mutual fund and also ratings provided by neutral players to select the mutual fund of one’s choice. Invest your money with upwardly, which uses a portfolio strategy which is tailored for the Indian market. They also simplify investment for you, giving you the best result.
Role of SEBI
All aspects of the functioning of mutual funds are ultimately controlled by the finance ministry of the federal government through SEBI which is Securities and Exchange Board of India. For proving its services the financial institution that offers a mutual fund as product charges a commission as fees and percentage of profitability obtain. These rates and other such factors are controlled and governed by SEBI through its laid down rules and regulations. In India, for a long period of time an investor could have invested in mutual funds floated only by the government through Unit Trust of India (UTI). But in 1993 along with other financial reforms the mutual fund market was also opened for private domestic and foreign players. Although these players are governed by very stringent rules and regulations laid down by SEBI. All rules and regulations that govern sale, purchase and trading of mutual funds are also amended time to time by SEBI as and when required.
How SEBI govern mutual funds
SEBI has established rules and guidelines which have to be followed to the letter by mutual funds companies and investors alike. To safeguard the interests of the investor SEBI not only regulates mutual funds but also imposes hefty fines in case of any practise which is against the laid down terms and conditions which are to be followed. Right from incorporation or registration there are stringent rules laid down by SEBI that have to be followed. The rules range from number and profile of directors, number and profile of independent directors, minimum corpus needed, advertising code, returns that can be promised to investors, selecting of investment avenues and much more. New guidelines to enhance transparency and performance are issued by SEBI all the time. All mutual funds and institutions governing mutual funds have to adhere to these guidelines and operate accordingly.