What is the role of mutual funds in development of indian capital market ?
Answers
Answer:
Indian mutual funds have emerged as strong financial intermediaries and are playing a very important role in bringing stability to the financial system and efficiency to resource allocation. Mutual funds have opened new vistas to investors and imparted much-needed liquidity to the system.
Answer:
the role of mutual funds as a dependable source of investment in a world of uncertain finances. has grown significantly. The power granted to the purchaser of investing in a dozen different securities without burning a hole through the pocket as well as the reduced dependency on a specific source of income makes for a very lucrative investment option. All the benefit without the anxiety! This unique advantage of mutual funds over other investment choices gives them a place of particular importance in the economy.
Explanation:
Mutual Funds As Financial Intermediaries:
As the term suggests, a ‘financial intermediary’ is any entity that acts as a middleman in financial transactions, between the relevant parties. This can be anything, a bank, mutual funds, pensions funds, investment companies, etc. The principal advantage of a financial intermediary is that it is able to circulate funds as necessary, distributing the available funds based on the financial need of the company. Consequently, the market remains stable and reduces the chances of financial extremes.
Mutual funds successfully fulfill this exact role and are hence called financial intermediaries. The funds collected from investors are handled actively by mutual fund managers, who purchase assets for stockholders as per their discretion. The companies that are invested in, benefit from the capital received and hence improve their performance, which prompts investors to entrust capital again. This is a cyclic process providing mutual benefit to shareholders and companies, which maintains financial stability and market liquidity.
Thus, the role of mutual funds is active as well as important as financial intermediaries.
The Role Of Mutual Funds In Shaping Indian Economy
Mutual funds have a long and successful history in India. It all started with the formation of the Unit Trust of India in 1963, created by the Government of India and the Reserve Bank of India. In the next two decades, various players from the public and private sectors entered the mutual fund market, which was now thriving. The SEBI Regulations in 1996 and the exemption of mutual funds from income tax dividends since 1999 were two fundamental turning points in making mutual funds more palatable to the public.