The financial system of the country is an important tool for economic development of the country, as it helps in creation of wealth by linking saving with investments. It facilitates the flow of funds from households to business firms to aid in wealth creation and development of both the parties. The Indian financial system is based on four basic components like Financial Markets, Financial Institutions, Financial Services and Financial Instruments. These elements mobilize the resources from the surplus sector and channelize the same to the different needy sectors in the economy. All these elements play important role for as an intermediary and facilitates the flow of funds from the areas of surplus to the areas of deficit. Reform of the financial sector was recognized, from the very beginning, as an integral part of the economic reforms initiated in 1991 in India with implementation of New Economic Policy. The major delineations of the financial sector reforms in India were found as under:
- Removal of the erstwhile existing financial repression.
- Creation of an efficient, productive and profitable financial sector.
- Providing operational and functional autonomy to institutions.
- Preparing the financial system for increasing international competition.
- Opening the external sector in a calibrated manner.
- Promoting financial stability in the wake of domestic and external shocks.
Series of reforms are made in Indian economy with lapse of time. Recent Indian Financial System reforms are as under:
- Withdrawal of Legal Tender Status for Rs 500 and Rs 1000 Notes
- Setting up of the Monetary Policy Committee
- Implementation of Goods and Services Tax
- Passage of the Insolvency and Bankruptcy Code
- Thrust towards digitization of Government receipts and payments
The term Mutual Fund refers to a pool of money accumulated by several investors who aim at saving and making money through their investment. The corpus of money so created is invested in various asset classes, viz. debt funds, liquid assets etc. Mutual Fund brings together money from many people and invests it in stocks, bond or other assets. The combined holdings of stocks, bonds or other assets the funds own are known as its portfolio. Mutual Funds are dynamic financial institutions, which play a crucial role in an economy by mobilizing savings and investing in the capital markets. Therefore, the activities of Mutual Funds have both short and long term impact on the savings and capital market and national economy. The organization that manages the investment is called Asset Management Company (AMC). AMCs normally come out with a number of schemes with different investment objectives from time to time. Mutual Funds are registered with Securities and Exchange Board of India (SEBI) that regulates security markets prior to the collection of the funds from the investors.