|
|
|
|
|
|
|
MFs emerged in the USA many years' back because of the inefficiency of the banking
system there. Banks would take money at deposit rates and lend it out to various
corporate investors. But there was a huge gap between the rates at which they were
willing to take money from individual investors and the rates at which they would
lend to huge corporate borrowers. In such a situation a lot of retail investors
were willing to go out and lend directly to corporate borrowers. They figured the
risk was acceptable. Lots of corporate borrowers also felt that rather than borrow
from banks at preposterous rates, they would do much better to access individual
investors directly. The catch was that the ticket size of individual investors was
very small. For a corporate borrower to transact directly with individual investors
would mean running up a towering transaction bill.
|
|
|
|
This was when the concept of a mutual fund emerged, whereby an entity with very
high levels of efficiency, no capital adequacy ratio's, extremely low costs and
not maintaining any priority sector lendings or government bonds etc, could pool
everybody's money together and lend it out to a AAA company. Of course, in such
an eventuality the concept of getting a return guaranteed became endangered. Because
individual investors in the mutual fund would then have to risk a portfolio that
some anonymous mutual fund manager put together. This brought in a new requirement
for diclosures. Investors who took such a risk wanted a very high level of transparency.
They wanted disclosures at any given point in time. They wanted to know where their
money was being invested.
|
|
|
|