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‡ Financial system refers to a set of activities,
which facilitate transfer of resources from
savers to borrowers. This system provides for
regular, smooth, efficient and cost effective
linkage between depositors and investors
     

‡ Financial market
‡ Financial institutions
‡ Financial instruments
‡ Financial services
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‡ Financial instruments are the intermediaries


that facilitate transactions on financial claims.
Financial instruments are broadly classified
into money market instruments and capital
market instruments
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‡ Financial institutions are organizations that
mobilize savings and provide finance or credit
to individuals and organizations. Financial
institutions are classified into three;
‡ Monetary institutions
‡ Non-monetary institutions
‡ Specialized institutions
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‡ A financial market is an institution or
arrangement that facilitates the exchange of
financial assets including deposits and loans,
stocks and bonds, options and futures.
Financial market consist of money market and
capital market.
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‡ Financial services are activities, benefits and
satisfactions connected with sale of money or
moneys worth. It covers a wide range of
activities including insurance, banking and
credit services such as merchant banking,
mutual funds, leasing etc.
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MUTUAL FUNDS
‡ Mutual funds are corporations that accept
money from savers and then use these
funds to buy stocks, long term funds or
short term debt instruments issued by
firms or governments.
DEFINITION
‡ According to Mutual Fund Fact Book
(published by the Investment Company
Institute of USA), ³a mutual fund is a financial
service organization that receives money from
shareholders, invests it, earns return on it,
attempts to make it grow and agrees to pay the
shareholder cash demand for the current value
of his investment ´
FEATURES
‡ Mobilize funds
‡ Provide opportunity to small investors for investment.
‡ Investors can enjoy the benefit of professional and
expert management of their funds.
‡ Maximize return and minimize risk for the benefit of
investors.
‡ Provides tax benefit to the investors.
‡ In India mutual funds are regulated by agencies like
SEBI.
‡ The cost of purchase and sale of mutual fund units is
low.
‡ Contribute to the economic development of a country.
OBJECTIVES
‡ To mobilize savings of people.
‡ Offer a convenient way to the capital and money
market.
‡ To tap domestic saving and channelise them for the
profitable investment.
‡ To enable the investors to share the prosperity of the
capital market.
‡ To act as agents for growth and stability of the capital
market.
‡ To attract investment from the risk.
‡ To facilitate the orderly development of the capital
market.
IMPORTANCE
‡ Mobilize small savings.
‡ Diversified investment
‡ Provide better returns
‡ Better liquidity
‡ Low transaction costs
‡ Reduce risk
‡ Professional management
‡ Offer tax benefits
‡ Support capital market
‡ Promote industrial development
‡ Keep the money market active