Decoding Mutual Funds Registered Under SEBI

Mutual funds are registered under the Indian trust act 1882. They are private trusts that are publicly traded on the stock exchange.

To understand what a mutual fund is it is important to understand what a trust is as they are both the same thing.

Like a trust has a settlor a mutual fund has a sponsor or promoters or establishers or creators of the fund or Trust. The initial trust property is transferred by this person to the trustee for management.

A mutual fund is basically a pool of a large number of shares of various companies brought together to give the investor or in this case the unit holder who is also called a beneficiary under the Indian trust act the benefit of diversification of capital.

This benefit is akin to the benefit received by a farmer who grows wheat, sugar cane, and millets at the same time to ensure that one of his crops is successful and does not lose his entire harvest because of failure of the monsoon this is in essence what a mutual fund aims to do.

All persons may not understand what the equivalent of wheat sugarcane and millets are in the share market to alleviate this problem. The SEBI has permitted the introduction of asset management companies popularly known as AMCs. Some well-known AMCs are HDFC AMC axis AMC etc. these AMCs or what we call trustees under the Indian trust act of 1882 they are people with great knowledge about shares or other financial instruments.

Now for a sponsor to collect more money or increase the pool of money to invest in various securities they must register under SEBI and apply for an NFO (New fund offering), very similar to the process of IPO also known as initial public offering.

Once SEBI grants approval to this trust to become a mutual fund the unit holders or subscribers or considered the beneficiaries and the trustee or the AMC must manage the trust money for the benefit of these unit holders.

Here SEBI plays the role of a regulator enabling people to trade their beneficial interest on the stock exchanges of our country like the Bombay Stock exchange at Mumbai and the national Stock exchange at Delhi.

It must be noted here that the essence of the Indian trust act still remains the same, in the traditional act and in the traditional studies of the act we learnt that private trusts were created by people having some property or money for the benefit of their minor children or illiterate or non-assertive dependents and to protect their interest for such purposes a trustee was appointed and the trust money was transferred to the trustee.

Under the scheme of mutual fund trust those without financial literacy or knowledge of the financial markets are able to benefit from these by getting professional management of industry leaders and the guarantee of our securities exchange board.

Award Winning Article Is Written By: Mr.Madhavraje Ramraje Patwardhan

Authentication No: AU222121850073-9-0822