A mutual fund is a professionally managed, collective investment scheme that pools money from many investors and invests typically in investment securities. The underlying securities can be stocks, bonds, short-term money market instruments, other mutual funds, other securities, and/or commodities.
A mutual fund scheme has a fund manager who decides the investments in accordance with the scheme's investment objective. In India, mutual funds are formed as trusts and the investments are managed by professional Asset Management Companies (AMCs). The mutual funds are governed by SEBI and function under strict regulations, especially related to investment management and client disclosures.
Mutual funds are an ideal investment vehicle for an investor, since they offer many advantages compared to other investment products:
- Wide choice of schemes in diverse asset classes
- Professional management by experts
- Diversification of the portfolio and risk-reduction
- Low costs / expenses
- High level of transparency and disclosures
- High level of liquidity
Recently, SEBI abolished entry loads on mutual funds, making them one of the cheapest products for investors to invest. Mutual funds are also now exchange traded like stocks.
Currently there are around 44 mutual funds functioning in India and boast of reputed names from India and international financial services industry. The industry had an Average Assets Under Management (AAUM) of about Rs.6.64 lac crores as on 31st March 2012. The AAUM of Equity schemes was about Rs.1.93 lac crores on this date. The total number of Equity oriented schemes (including Balanced Funds) were around 450 (approx).
Considering decent economic growth, in the coming years, number of players in the mutual funds industry are expected to only increase and hence number of mutual fund schemes. In this scenario, choosing consistent and better performing schemes will be a challenge for investors. Moreover, keeping consistent performers in the portfolio will be even more difficult.
Past Performance of MF Equity schemes:
Mutual funds have performed really well in the past due to professional fund management and opportunities available in a growing market like India. The performance of equity mutual funds schemes is noteworthy, outperforming the broader markets over different time horizons. The steady performance has helped investors in equity mutual funds schemes to successfully create wealth in the past.