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Unit 13: Mutual Funds and Insurance Services

mutual help of the subscribers for portfolio investment and management of these investments Notes
by experts in the field.
According to Hirch, a mutual fund is a professionally managed investment company that
combines the money of many people whose goals are similar and invest this money in a wide
variety of securities. As per the UK Investment Trust and Companies, a mutual fund is a vehicle
that enables a number of investors to pool their money and have it jointly managed by professional
money managers. Investment Company Institute, USA defines the term mutual fund as a type of
Investment Company that gathers assets from investors and collectively invests those assets in
stock, bonds or money market instruments.

Securities and Exchange Board of India (Mutual Fund) Regulations, 1996 defines mutual fund as
a fund established in the form of a trust to raise monies through the sale of units to the public or
a section of the public under one or more schemes for investing in securities including money
market instruments.
Mutual fund generally refers to open-end investment trusts whose distinctive feature is regular
sale and purchase of securities. Further, mutual funds must redeem their shares at the funds
current net asset value at the time the shareholders request redemption.

!
Caution A closed-end fund is often incorrectly referred to as a mutual fund, but is actually
an investment trust.
There are many types of mutual funds, including aggressive growth fund, asset allocation fund,
balanced fund, blend fund, bond fund, capital appreciation fund, clone fund, closed fund, crossover
fund, equity fund, fund of funds, global fund, growth fund, growth and income fund, hedge
fund, income fund, index fund, international fund, money

13.1 Mutual Fund

In sum, mutual fund is a form of collective investment bought in by a large group of investors
for the mutual benefit of savers as well as investors. Each fund is divided into equal portions or
units. Anyone investing in the fund is allocated units in proportion to the size of one's investment.
The price of these units is governed principally by value of the underlying investment held by
the fund. The flow chart, as brought out in Figure 13.1 presents the working of mutual funds.

Figure 13.1: Structure of Mutual Fund

Investors
Passed Back Pool their
to Money with
Returns
Fund Manager

Generates Invest in–
Securities

The chart above throws lucid light on rationale of mutual funds. They receive money savings
from many investors, pool them and then purchase securities. The individual investors receive
the benefits of professional management and diversified portfolio at relatively low cost with
much convenience and flexibility.

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