Theme: Organizational aspects and procedure of mutual funds

Role of Mutual Funds in Indian Capital Market development

The Indian mutual fund segment is one of the fastest growing segments of our economy. The industry has grown at a CAGR of nearly 22 percent over the past decade. With assets of USD 125 billion, India ranks 19th and is one of the fastest growing countries in the world. Factors driving the growth of the industry are huge market potential, high savings rate, comprehensive regulatory framework, tax policy, innovation of new schemes, aggressive role of distributors, investor education by SEBI and past performance. Mutual funds not only provide capital market growth by channelizing the savings of retail investors, but also themselves play an active role as active investors in Indian companies in the secondary and primary market. Let's take a closer look at the role of investment funds in the development of the capital market.

1. 
   Mutual fund as a source of household sector savings mobilization: The mutual fund industry has come a long way to help transfer savings to the real sector of the economy. The total AUM of the mutual fund industry recorded a CAGR of 12.4% in FY07-16. This shows how mutual funds have played a crucial role in leveraging the savings of retail investors in the capital market over the past 10 years in India. By the end of March 2017, the AUM with mutual funds was around Rs. 17.5 lakh crore. In 2017 alone, investors poured in Rs. 3.4 lakh crores across all categories of mutual funds in India.
   

(2) Financial service or mutual fund as an intermediary: The financial services sector is the second largest after trade, hotels, transport and communication and contributes about 15 percent to India's GDP. With rapid growth, mutual funds have become increasingly important providers of debt and equity funds. Indeed, with low interest rates and rising equity prices in the capital markets, corporations have benefited from the expansion of mutual fund assets. In recent years, mutual funds as a group have been the largest net buyers of stocks and the largest buyers of corporate bonds. All MFs raise funds from both individual investors and corporates to invest in financial assets of other companies. The number of savings houses is also increasing every year in the rapidly growing Indian economy. As of FY16, there were 42 asset management companies operating in the country.
(3) Popularity of mutual funds among small investors: Small investors have many problems such as limited funds, lack of expert advice, lack of access to information, etc. Mutual funds have been a boon to all retail investors. It is a special type of institutional mechanism or investment method through which small and large investors pool their funds and invest in a portfolio of various corporate securities under the advice of a team of professionals. the result of these professional investments in mutual funds. It forms an important part of the capital market and provides the benefits of a well-diversified portfolio and an expert fund manager to a large number of investors, particularly retail investors. An ordinary investor who applies for shares in an IPO of any company is not assured of any guaranteed distribution. But mutual funds that invest in certain capital issues made by companies receive a confirmed distribution, shares, so a good IPO can be achieved by investing in a mutual fund.
(4) Mutual funds as part of the government's financial inclusion policy. India: SEBI is now promoting mutual funds in small towns and rural India to attract small savings and make rural people aware of new investment avenues, such as mutual funds that offer good returns at low risk. So the govt. India's financial inclusion policy to mobilize the savings of India's unbanked population is now actively supported by mutual funds. In order to encourage investment from smaller towns, SEBI has allowed AMCs to increase their expense ratio to 0.3 per cent provided they generate more than 30 per cent inflows from smaller towns. Mutual funds and AMFI run investor awareness programs for financial inclusion.
A mutual fund is a financial intermediary in the capital market that pools collective investments in the form of units of retail and corporate investors and maintains a portfolio of various schemes that invest these collective investments in equity and debt instruments on behalf of investors.
NAV is the total market value (less legal expenses and fees) of shares, bonds and securities held by the fund in the portfolio of a particular mutual fund scheme on any given day. NAV per unit represents the market value of all shares/debentures/debentures or any other instrument in a mutual fund scheme on a particular day, net of all expenses and liabilities and accrued income, divided by the outstanding number of units in the scheme.

NAV =	Market Price + Other Assets – Total Liabilities
	Units Outstanding as on NAV date

There are three main players involved in setting up a mutual fund business in India namely the sponsor, the AMC and the mutual fund trust. They are assisted by banks, registrars, transfer agents, depository participants and custodians for the smooth operation of investment funds.

By composition, investment funds are divided into open and closed funds. On the basis of portfolio, mutual funds can be classified as growth funds, income funds, balanced funds and money market mutual funds. According to their geographical origin, they can be called domestic funds and offshore funds. Certain funds are further classified as Index Funds, Gold Covered Funds, ELSS Funds, Real Estate Funds, ETFs, Gold Funds and Fund of Funds etc.