Author: P.V. Subramanyam

People have been investing since times immemorial. You could invest money as an owner (equity), as a lender (debt), as a landlord (rent), as a banker (gold). However, as the market got more and more sophisticated direct investing became difficult, if not impossible. So, the common investor needed a manager who would help him/her in this effort. This led to the emergence of mutual funds.
Thus clearly mutual funds were born because the financial markets became sophisticated and complex.

In the USA Mutual fund industry was created more than a Century ago. In India the Mutual fund industry was born in 1963 with the creation of UTI. It is to the vision of G S Patel that he created it as a trust and the form is still in use.

Concept of a Mutual Fund

- Common pool of money - only those who have the same needs should come together under one umbrella. That is to say if you want debt investments and your brother wants equity, you have options to choose from.

- Investments- the investor will invest through different schemes.

- Joint or ``mutual`` ownership - the person who invests get the benefits.

- Units are the representation of ownership - the unit holder of a mutual fund is neither a lender nor the ``owner`` of the fund house. He is giving his money for being managed by the fund house.

Constitution

- In US Mutual Funds are constituted as an investment company.

- In India Mutual Funds are constituted as a trust.

P.V. Subramanyam is a financial domain trainer and can be contacted at pv.subramanyam@irisindia.net