3. A Mutual Fund is a form of collective investment that pools money from many
investors and invests the money in stocks, bonds, short-term money market
instruments, and/or other securities.
In a Mutual Fund, the fund manager trades the fund's underlying securities,
realizing capital gains or loss, and collects the dividend or interest income. Mutual
funds enable hundreds, and in some cases even millions, of investors to pool their
money
Investors in Mutual Funds entrust their investment decisions to a professional
money manager and his/her staff. Most Mutual Funds have clearly defined
investment practices and objectives for their investments
4.
5.
6. The government of India issued guidelines for mutual funds on February 14,1992.
While issuing the guidelines, the government specifically mentioned that mutual
funds had become a major vehicle for mobilization of savings.
Particularly from the small and house hold sectors, for investment in the stock
market in view of their growing importance in the capital market and their
expanding investor base.
It was also felt necessary for the government to develop a comprehensive set of
prudential guideness for the all-round development and regulation of mutual
funds ensuring investor protection
7. These guidelines are applicable to all mutual funds that invest primarily in the
capital market and also partly in money market instruments subject to the following
1. Money market mutual fund that would invest exclusively in the money market
instrument would be regulated by the Reserve Bank of India on the basis of
specified guidelines to be laid down by RBI.
However ,money market schemes of other mutual funds would be regulated by
SEBI.
These regulations will be in confirmative with the guidelines to be issued by RBI
for money market mutual funds investing exclusively in money market
instruments.
8. 2. Offshores funds that have non resident investors and they are regulated by
provision of the countries where they are registered shall be outside the purview of
these guidelines .
These funds shall continue to be governed by the rules and procedure laid down
for the purpose of approving and monitoring their performance by the
Government of India
Mutual funds with special characteristics ,for example funds dealing with assets,
other than securities may be specifically exempted by the government from the
preview of these guidelines
9.
10. Mutual funds shall be authorized for business by SEBI . The mutual funds shall
be sponsored by registered companies with the sound track record ,general
reputation and fairness in all their business transaction.
They shall be established in the form of trust under Indian Trust Act. The
sponsoring institution will be free to work out the details regarding the
constitution of trust.
The trust will be then authorized to float one or several different scheme under
which unit shall be issued to the investors. Mutual funds shall be operated only
by separately established Asset Management Companies (AMC’s)