{"id":50906,"date":"2022-11-23T12:56:35","date_gmt":"2022-11-23T07:26:35","guid":{"rendered":"https:\/\/corpbiz.io\/learning\/?p=50906"},"modified":"2022-11-23T12:58:37","modified_gmt":"2022-11-23T07:28:37","slug":"difference-between-mutual-funds-and-nidhi-company","status":"publish","type":"post","link":"https:\/\/corpbiz.io\/learning\/difference-between-mutual-funds-and-nidhi-company\/","title":{"rendered":"Difference Between Mutual Funds and Nidhi Company \u2013 An Overview"},"content":{"rendered":"\n<p>This\narticle aims to highlight the difference between Mutual Funds and Nidhi\nCompany. There are so many differences between the two and the only similarity\nbetween them is that both can operate only when a third party puts its\nresources into them. Before delving into the major differences between Mutual\nFunds and Nidhi Company, it is imperative to look into the basic\ncharacteristics of the two.<\/p>\n\n\n\n<h2 class=\"wp-block-heading\">What is the Meaning of Mutual Funds and Nidhi\nCompany?<\/h2>\n\n\n\n<p>You can check the meaning of Mutual\nFunds and Nidhi Company below:<\/p>\n\n\n\n<h3 class=\"wp-block-heading\">Meaning of Mutual Funds<\/h3>\n\n\n\n<p>Mutual Fund is an investment fund which is\nprofessionally managed by a money manager, and it allows investors, with a\ncommon investment objective, to pool their money together, and the money is\nfurther used to purchase multiple securities like bonds, stocks, government\nsecurities and other short-term debts. The income generated from this common\ninvestment pool is then proportionately distributed among the investors after\ndeducting applicable taxes and other expenses based on the Net Asset Value\n(NAV). The NAV is the total market value of all the bonds, stocks, and other\nsecurities in a mutual fund on a particular day. It&#8217;s the price at which\ninvestors buy or redeem their mutual fund investments.<\/p>\n\n\n\n<p>Professional fund managers invest the money\ncollected in the mutual fund in tune with the pre-stated object of the fund for\na fee charged by the fund house, which is deducted from the pool of money. This\nfee is determined as per guidelines laid down by the Securities &amp; Exchange\nBoard of India (SEBI). Mutual funds are apt for investors who do not possess\nin-depth knowledge of the market or lack huge amounts of money for investment. <\/p>\n\n\n\n<p>Investors can invest in a mutual fund by either\npaying a lumpsum amount at one go or by a Systematic Investment Plan (SIP)\nwhich facilitates the regular fixed investment of a certain amount over\nrecurring periods. There are various types of mutual funds based on the\nstructure of the mutual fund, namely, Open-Ended Mutual Funds and Close-Ended\nMutual Fund or based on asset classes like Equity Mutual Funds, Debt Mutual\nFunds and Hybrid Mutual Funds.<\/p>\n\n\n\n<p><strong><em>To invest in mutual funds, having a PAN card is\nmandatory. One also needs to provide: <\/em><\/strong><\/p>\n\n\n\n<ul><li>Valid\nproof of identity like, inter alia, PAN, Aadhar, Passport, Voter-ID or Driver&#8217;s\nLicense and <\/li><li>Valid\nproof of address like, inter alia, Aadhar, Passport, Voter-ID or Driver\u2019s\nLicense, registered Lease Deed or Sale Deed of residence or Ration Card.<\/li><\/ul>\n\n\n\n<h3 class=\"wp-block-heading\">Meaning of Nidhi Company<\/h3>\n\n\n\n<p><strong><a class=\"text-primary\" href=\"https:\/\/corpbiz.io\/nidhi-company-registration\">Nidhi Company<\/a><\/strong> is an entity which is registered under Section\n406 of the Companies Act, 2013 and is regulated by the Ministry of Corporate\nAffairs under the Nidhi Rules, 2014. It is a Non-Banking Finance Company (NBFC)\nwhich has received certain exemptions from the RBI and does not need approval\nfrom the RBI prior to its registration. Nidhi Companies are formed with the\nobjective of lending and borrowing money to its members. As defined under the\nNidhi Rules, Nidhi Companies are incorporated with the object of <em>&#8220;cultivating\nhabit of thrift &amp; savings among its member and receiving from and lending\nto the members of their mutual benefit &amp; also duly complying with rules\nformed by the Central Government.\u201d<\/em> &nbsp;They\nare also called Mutual Benefit Companies.<\/p>\n\n\n\n<p>A Nidhi Company must be a public company\nincorporated with a minimum of seven shareholders and a minimum of three\ndirectors. Within one year post its incorporation, there should be at least two\nhundred shareholders, have net owned funds (equity share capital and free\nreserves after deducting accumulated losses intangible assets.) and of at least\nRupees Ten Lakhs, have unencumbered term deposits of not less than 10 percent\nof the deposits and have 1:20 net owned funds to deposit ratio.<\/p>\n\n\n\n<p>A Nidhi Company is prohibited from dealing with\nchit funds, hire-purchase finances, leasing of finances, securities business,\ninsurance business, accepting from or lending funds to any other person\/entity\nexcept its own members, issuing share or any debt instruments.<\/p>\n\n\n\n<p><strong><em>The documents for required the incorporation of\na Nidhi Company are as follows:<\/em><\/strong><\/p>\n\n\n\n<ul><li>Proof\nof identity and address proof of directors and shareholders, <\/li><li>copy\nof PAN and passport-size photographs of directors and shareholders, <\/li><li>If\nthere is a registered office, then a no-objection certificate is signed by the\nowner\/landlord, lease\/sale deed and utility bills.<\/li><li>Memorandum\nof Association (MoA) &amp; Articles of Association (AoA) of the company,\nDirector Identification Number (DIN) and Digital Signature Certificates (DSC)\nof all directors.<\/li><\/ul>\n\n\n\n<h2 class=\"wp-block-heading\">Mutual Funds and Nidhi Company \u2013 Differences <\/h2>\n\n\n\n<p>There are many differences between Mutual Funds\nand Nidhi Company, and a few are listed below:<\/p>\n\n\n\n<ol><li><strong>Nature of Business<\/strong><ul><li>The nature of a Mutual Fund business is to accept funds from investors and further invest them in securities and offer returns to the investors in accordance with NAV.<\/li><li>The nature of business of a Nidhi Company is accepting funds from and lending funds to its members only.<\/li><\/ul><\/li><li><strong>Objective<\/strong><ul><li>The main objective of a Mutual Fund is to increase the money of the investors, while the main objective of a Nidhi Company is to generate a habit of thrift and saving among its members.<\/li><\/ul><\/li><li><strong>Who can invest and redeem?<\/strong><ul><li>Any individual with a shared investment objective is in tune with the requisite Mutual Fund, whereas in Nidhi Company, only the members are allowed to deposit and borrow money from the company.<\/li><\/ul><\/li><li><strong>Usage of Funds<\/strong><ul><li>The pool of money in a Mutual Fund can be used by the fund managers to deal with chit funds, hire-purchase finances, leasing of finances, securities business, insurance business.<\/li><li>A Nidhi Company cannot use the deposits made by its members for any other purpose other than lending money to its members.<\/li><\/ul><\/li><li><strong>Legal Status<\/strong><ul><li>A Mutual Fund is an investment tool which facilitates investments and offers returns to its investors. It is a &#8220;trust&#8221; within the meaning of the Indian Trusts Act 1882 and is governed in accordance with rules and regulations brought out by SEBI from time to time.<\/li><li>A Nidhi Company is a public company incorporated under Section 406 of the Companies Act, 2013 and is governed by the Nidhi Rules, 2014.<\/li><\/ul><\/li><\/ol>\n\n\n\n<h2 class=\"wp-block-heading\">Conclusion<\/h2>\n\n\n\n<p><strong>Mutual Funds<\/strong><sup><a class=\"text-primary\" href=\"https:\/\/en.wikipedia.org\/wiki\/Mutual_fund\"><strong>[1]<\/strong><\/a><\/sup> and Nidhi Company operate on different planes with different business models, objectives, structures, and modus operandi. Mutual Funds accept money from investors and further invest them in securities and offer returns to the investors in accordance with NAV. Nidhi Companies are <strong><em>Non-Banking Finance Companies (NBFC)<\/em><\/strong> which are formed with the objective of lending and borrowing money to their members. The only similarity between them is that both can operate only when a third party puts its resources into them and that both offer financial returns to parties depositing money to its pool of funds. <\/p>\n\n\n\n<p class=\"text-left\"><b>Read Our Article<\/b>:<mark style=\"background: #fffd03 !important;\"><a href=\"https:\/\/corpbiz.io\/learning\/amendments-to-sebi-mutual-funds-regulations-1996\/\">Amendments in the SEBI (Mutual Funds) Regulations, 1996<\/a><\/mark><\/p>\n","protected":false},"excerpt":{"rendered":"<p>This article aims to highlight the difference between Mutual Funds and Nidhi Company. There are so many differences between the two and the only similarity between them is that both can operate only when a third party puts its resources into them. Before delving into the major differences between Mutual Funds and Nidhi Company, it [&hellip;]<\/p>\n","protected":false},"author":47,"featured_media":50907,"comment_status":"open","ping_status":"closed","sticky":false,"template":"","format":"standard","meta":[],"categories":[31],"tags":[2891],"acf":{"service_id":"9"},"authorName":"Sherin Jose","authorImageUrl":"https:\/\/corpbiz.io\/learning\/wp-content\/uploads\/2022\/11\/MicrosoftTeams-image-4-e1668575330329.jpg","authorDescription":"Sherin has degrees in Law and English Literature from the University of Delhi. She is adept at legal research and writing and enjoys discussing and analysing important legal developments. Her primary interests lie in Corporate, FinTech and IPR Law and she is always on the lookout for exploring new developments in the area. She is an avid reader who loves classics and contemporary fiction. She likes to travel, bake and obsess over cat videos in her free time.","postViews":3202,"readingTime":4,"_links":{"self":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/50906"}],"collection":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts"}],"about":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/types\/post"}],"author":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/users\/47"}],"replies":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/comments?post=50906"}],"version-history":[{"count":3,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/50906\/revisions"}],"predecessor-version":[{"id":50910,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/posts\/50906\/revisions\/50910"}],"wp:featuredmedia":[{"embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media\/50907"}],"wp:attachment":[{"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/media?parent=50906"}],"wp:term":[{"taxonomy":"category","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/categories?post=50906"},{"taxonomy":"post_tag","embeddable":true,"href":"https:\/\/corpbiz.io\/learning\/wp-json\/wp\/v2\/tags?post=50906"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}