2. Major types of mutual funds
• There are two major types of mutual funds
– Money market mutual funds
– Stock funds and bond and income funds
Further mutual funds can classified on the basis of
risk and return
3. Types of mutual funds
• 1. Money market funds
– These funds invest in money market securities
– They are low risk and low return funds
– They provide the chance to earn the going rate in
the money market with diversification advantage
4. • 2. Bond Funds
– These fund specialize in fixed income sector
– Within bond funds, there exists many categories
– Funds may specialize in government bonds, or
corporate bonds
– Or they specialize in bonds of different maturities
5. • 3. Hybrid Funds (Balanced Funds)
• Includes both bonds and equity funds
• They are also called balanced funds
• The main objective is to preserve capital and
earn a return
• Have a bit higher risk than the bond funds
because of investment in equity
6. • 4. Equity funds
• All investment is made in common stocks
• Within equity funds, there can be growth funds
or income funds
• Growth funds have investment in stocks that
have good growth potential (usually small firms)
• Income funds have investment in stocks that
provide consistent flow of income(usually large
firms)
7. • 5. Sector funds
• Some industries perform well in one stage of
business cycle and others perform well in the
other stages of business cycle
• An investment company may have a mutual
fund that specialize in any one sector
• For example, a mutual fund may invest only in
oil stocks
8. • 6. Index funds
• An index fund tries to match the performance
of a broad market index
• The fund buys shares in securities in the
proportion to the security’s representation in
the index
• It is an unmanaged fund and hence a low cost
• Investors following passive strategy will invest
in index fund
9. Mutual Funds returns
• Mutual funds returns are expressed in total
returns i.e. dividends and capital gains as a
percentage of initial investment
• A cumulative total return measures the actual
performance over a stated period of time, 1
year, 3 years or 10 years
• For example, a fund gave returns:
• Past 1 year Past 5 Years Past 10 years
• -10% 8.5% 180.5%
10. Mutual Fund Regulations
• An Asset Management Company for every
open-end & closed-end mutual fund shall
appoint a trustee.
• A trustee shall be a schedule bank, a foreign
bank, an Investment company having
minimum A+ rating from credit rating agency
registered with the commission.
• A central depository company approved by
the commission can also be appointed as
trustee.
11. • The trustee should be independent of the
AMC.
• The trustee should carry out the instructions
of AMC in respect of investment unless they
are in conflict with the any provision of the
rules issued by the commission.
• Units or certificates of an open-end or closed-
end mutual fund shall not be offered to the
public unless the schemes approved by the
commission.
12. • Sale, purchase, issue and transfer of units
certificates affected by the open-end or closed
end schemes are carried out in accordance
with the provisions of constitutive documents.
• Open-end or closed-end mutual fund schemes
should meet the minimum investment criteria
specified by the commission under regulation
44(3)(e).
• Should maintain proper books of accounts.