A mutual fund is a special type of investment institution which acts as an investment conduit. It pools the savings of relatively small investors in a well – diversified portfolio of sound investment. Mutual funds issue securities (known as units) to the investors (known as unit – holders) in accordance with the quantum of money invested by them. The profit (or losses) are shared by the investors in proportion to their investments. A mutual fund is set up in the form of a trust which has (i) a sponsor, (ii) trustee, (iii) Asset Management Company (AMC) and (iv) custodian. The trust is established by the sponsor who is like promoter of a company. The trustees of the mutual fund hold its property for the benefit of unit – holders. The trustees are vested with the general power of superintendence and direction over AMC. They monitor the performance and compliance of the SEBI regulations by the mutual fund. The AMC manages the funds by making investment in various types of securities. The Custodian holds the securities of the various schemes of the mutual fund in its safe custody. As an investment intermediary, mutual funds offer a variety of services/ advantages to the relatively small investors who, on their own, cannot successfully construct and manage an investment portfolio mainly due to small size of their funds, lack of expertize/ experience and so on. These inter – alia, include convenience in terms of lower denomination of investment and liquidity, lower risk through diversification, export management and reduced transaction cost due to economies of scale.

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