What is mutual fund in India?

Mutual fund is money collected in a central place from different investors for investment with the aim of achieving certain goals. The investors earn profits when the mutual funds earns interest. It is worthy to note that every mutual fund usually launches a different scheme which has specific objectives.

Mutual fund in India was introduced in 1963 when the Indian government launched Unit Trust of India. The unit trust enjoyed a monopoly until 1987 when other players were introduced to the market. These included Punjab National bank, Cnara Bank and the state bank. In 1993, the market was made open to private investors. The first private sector fund was Kothairi pioneer, which merged with Fraknlin Templeon.

There are various types of mutual funds in India. They are classified according to type of investment, time of closure of the scheme, according to tax incentives schemes and according to time of payout. The following is a description of some of these Mutual Funds

According to type of investment

Whenever a new scheme is being launched in India, it is supposed to declare the kind of instruments, which will be used in making investment. There are various kinds of these schemes and they include the following

Equity Funds

Debt Funds

Diversified Funds

Money Market Funds

Sector specific Funds

Index Funds

According to time of closure

During the time of launching, it is very essential that the scheme declares whether it is an open or closed scheme. Open scheme are usually allowed to issue and redeem unit during any time while for closed scheme it cannot issue new units except in cases or rights issue or bonus. This unit capital of open-ended fund is usually not stable. It can fluctuate on a daily basis. That for closed ended scheme is more stable. For new investors who want to invest in close-ended scheme, they can only do this through the use of secondary market.

According to time of payouts

Some mutual funds are usually classified according to the time of payouts. This include

Dividend paying scheme

Reinvestment schemes

According to Tax incentives

Mutual funds can also be allowed to float some tax saving scheme. This means that they are at times classified according to

Tax saving paying scheme

Reinvestment schemes

This industry in India has been continuously growing, though still less than 10 households have invested in these schemes. This is specifically because a majority of the population still considers it a high-risk option.

Whenever a new investor is selecting a scheme to invest in, they should seek customizable advise so that they make the right choices. The right scheme is a scheme, which provides the combination of stable income, growth and security in relative term.