Structure of Mutual Funds in India

The previous chapter for Ravi and Priya discussed the history of mutual funds in India, including how they started with UTI and evolved into a competitive market. Ravi's latest query concerns what drives people to invest in mutual funds.

Priya claims that mutual funds' popularity can be attributed to their professional management, flexibility, and diversification, all of which appeal to new and experienced investors. Ravi is still interested, though. He wants to know more about mutual funds' structure and the person overseeing the entire pooled investment.

The chapter will discuss the mutual fund structure in India and the essential players in its management.

It is worth noting that people invest in mutual funds for several reasons. The big one is diversification. Instead of placing all your money in one stock, it spreads it across various assets. These could be stocks, gold, silver, or even debt instruments. This lowers the risk. It suits new investors needing more time or skills to pick each investment.

The other reason is professional management. Fund managers are professionals who manage the investments and make all the decisions. This is great for those needing clarification on the stock market or more time to follow it.

Additionally, mutual funds are flexible. SIPs (Systematic Investment Plans) allow you to begin with modest sums. You can sell your units fast if you need money. Additionally, mutual funds frequently yield higher returns than savings accounts.

Benefits from taxes are another lure. Funds like ELSS (Equity Linked Savings Scheme), under Section 80C for a tax deduction, are favoured among young investors desiring to reduce taxes and enhance their wealth.

Let's now examine the structure and regulations surrounding mutual funds.

The structure of mutual funds is simple. Mutual funds pool money from many investors and invest it in stocks, bonds, or money market instruments. Fund managers manage this pooled money and grow the investment.

Mutual funds are set up as trusts. There are four key players: the sponsor, trustees, AMC, and custodian. The sponsor starts the fund. Trustees protect investors. They oversee the fund’s operations. The AMC (Asset Management Company) manages the investments. They handle buying and selling assets. The custodian holds the securities to keep them safe.

By investing in units of mutual funds, you become the owner of portions of investments. It enables you to diversify your portfolio even on a small amount in various assets.

Now, let's speak about regulations. This means the protection of investments, and SEBI does this. The main regulator in the securities market is the Securities and Exchange Board of India. It lays down the law on funds to follow the rules and guidelines over fund management, fees, and transparency.

This helps keep things clear for investors. SEBI also sets advertising rules. You might have heard ads say, 'Mutual funds are subject to market risks. Read all documents carefully.' This is to remind everyone about the risks.

AMFI (Association of Mutual Funds in India) is separate from SEBI. AMFI upholds moral principles and represents all mutual funds. 'Mutual Funds Sahi Hai' is one of the campaigns it runs to encourage people to invest.

Investor protection is another goal of SEBI. Its complaint-handling systems are in place. Mutual funds must have service centres to assist investors. This makes new investors feel confident.

Recent regulations are slanted towards digital convenience. SEBI encourages online processes for investing and switching funds. It is also easy for young investors who love doing everything online to complete KYC online.

Conclusion:

In conclusion, investing in mutual funds in India is simple and worry-free. SEBI ensures that the following guidelines are followed, while AMFI strives to uphold standards. For this reason, mutual funds are crucial for novice and seasoned investors. It also provides a safe way to get richer.

As Ravi and Priya gain more knowledge about mutual funds, their comprehension of how each significant player—the sponsor, trustees, AMC, and custodian—effectively manages the money increases. He wants to know how an AMC handles day-to-day investments.

The upcoming chapter will cover the function of AMCs and how they assist investors in achieving their financial objectives.