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MutualFund Genesis
Genesis Back
 
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.
 

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