An analysis of Mutual funds as financial intermediation and its contributions
Author(s):
Dr. R. Narmadha
Keywords:
Savings, Investment, Financial intermediation, Economic development.
Abstract
Economic development of a country depends on both autonomous investment and induced investment. The Former relates to the investments made by government in public utility works, undertaken to improve the general welfare. Whereas the later deals with private investments, undertaken with profit motive. The corporate sector of a country will be in constant demand of finance for varied purposes such as initiating of new projects, expanding the existing one, diversification of the business, modernization of present working process etc., Despite the fact, retained earnings helps in meeting some part of these requirements, major proportion of funds flows from well established and functioning financial system of a country. It is this financial system of a country, which establishes link between those who have got excess of money and those who requires it. Financial system facilitates the capital formation of a country. Savings from the household sector of the economy, whereas investments are made by the corporate sector. Hence a proper mechanism which ensures, accumulation of savings from households and supplying it to those who invest, needs to be established enabling the utilization of idle funds and enhancing their value and contributing to economic growth and development in general. Therefore, creating an environment, where borrowers and lenders are easily accessible to each other, is a vital requisite. Though this situation seems to be an ideal financial system, having direct access between lenders and borrowers may not be possible due to asymmetric information. Hence, the role financial intermediaries becomes predominant, which pool funds from various sources and facilitates its investment in diversified financial assets. Mutual funds performs these functions very effectively. A mutual fund is a collective investment instrument arrangement. In India, three entities constitutes a mutual fund: the sponsor, the trust and the asset management company. The sponsor promotes the mutual fund. The mutual fund is organized as a trust. Mutual funds have recorded a very impressive growth in India. This paper attempts to depict the different facets of mutual funds from the investors’ perspective.
Article Details
Unique Paper ID: 158928

Publication Volume & Issue: Volume 9, Issue 11

Page(s): 23 - 27
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