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Unit 5: Investment Vehicles

Government schemes: You can invest in RBI bonds directly through the Reserve Bank of India or Notes
through a broker. Investments in other government schemes can normally be made through
nationalised banks and post offices.
For more details on specific government schemes, visit Government Schemes Directory.
Fixed income mutual funds: Fixed-income and money market mutual funds offer investors an
exposure to fixed-income instruments. Open-ended mutual funds are available round the year
and can be easily purchased/sold on any business day.
Most Asset Management Companies (AMCs) have service centres/authorised agents/brokers
across the country through whom you can invest in mutual funds.

5.4 Mutual Funds

Various authors have defined a mutual fund in different ways. According to Pierce, James L, it is
a non-depository or non-banking financial intermediary which acts as an “important vehicle for
bringing wealth holders and deficit units together directly.”

Weston, J. Fred and Brigham, Eugene F, in their book Essentials of Managerial Finance state that
mutual funds are corporations that accept dollars from savers and then use these dollars to buy
stock, long-term bonds, short-term debt instruments issued by business or government. These
corporations pool funds and thus reduce risk by diversification.

Figure 5.1: Mutual Fund Operation Flow Chart

A mutual fund is essentially a mechanism of pooling together the savings of a large number of
small investors for collective investment, with an avowed objective of attractive yields and
capital appreciation, holding the safety and liquidity as prime parameters.
According to the author: Mutual fund is a trust that pools the savings of a number of investors
who share a common financial goal. The money, thus, collected is then invested in capital
market instruments such as shares, debentures and other securities. The income earned through
these investments and the capital appreciation realised are shared by its unit holders in proportion
to the number of units owned by them. Thus, a mutual fund is the most suitable investment for
the common man as it offers an opportunity to invest in a diversified, professionally managed
basket of securities at a relatively low cost.

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