Mutual funds and its features

2.  A mutual fund is a professionally-managed investment
scheme, usually run by an asset management company
that brings together a group of people and invests their
money in stocks, bonds and other securities.
 Mutual funds are mobilizers of saving of the small investor
in instruments like stock and money market instruments.
 A mutual fund is a trust that pools together the savings of a
number of investor who share a common financial goal.
 Investment in securities are spread over a wide cross
section of industries and sector reducing the risk of the
Portfolio.

3.  Mobilizing small savings.
 Investment avenue.
 Professional management.
 Diversified investment.
 Better liquidity.
 Reduced risk.
 Investment protection.
 Tax benefit.
 Low transaction cost.
 Economic development

4. Investors
Pool their
money with
Fund
Manager
Invest in
Securities
Generates
Returns
Passed back to

5. Fund Sponsor
Trustees
Asset management
Company
Depository
Custodian
Agent

6. Mutual fund in India follow a 3-tier structure
 First tier: The first tier is the Sponsor who thinks of
starting the fund.
 Second tier: The second tier is the Trustee. The objective of
trustee is to seen as the internal regulator of a mutual
fund.
 Third tier: the third tier is the Asset Management Company
(AMC) , to manage investor’s money. The AMC in return is
charge a fee for the services provided.

7.  Mutual fund shall be constituted in the form of a trust under the
provisions of Indian Registrations Act and provisions laid down by SEBI.
 A trustee should be person of integrity, ability, and should not have been
found guilty or being convicted of any economic offence or violation of
securities law.
 At least 50% of the trustee shall be independent trustee.
 The trustee and the AMC with SEBI’s prior approval shall enter into an
investment management agreement.
 The trustee shall ensure the AMC has the necessary infrastructure and
personnel.
 The trustee shall ensure that AMC is monitoring security transaction with
brokers.
 The trustee shall ensure that the EMC has been managing the scheme
independently.
 The trustee should fulfill all its duties in order to protect the interest of the
investor

8.  It should have a sound track record, reputation and fairness in
transaction.
 The sponsor or trustee shall appoint an AMC with SEBI’s approval.
 The appointment of the AMC can be terminated by majority of trustee
or by 75% of unit holder.
 The director of AMCs should have adequate professional experience.
 At least 50% director of AMCs should not be associated with the
sponsors or it’s subsidiaries or trustees.
 The chairman of the AMC should not be trustee of any other mutual
fund.
 The AMC shall have a minimum net worth of Rs. 10 crore.
 The AMC shall not act as an AMC for any other mutual funds.

9.  All the schemes to be launched by the AMC should be approved by the trustee
and are to be filed with SEBI.
 The offer document should contain adequate disclosure to enable the
investors to make informed decisions.
 Advertisement of closed ended schemes in conformance with SEBI’s code.
 The listing of closed ended schemes is mandatory and it should be listed on a
recognized stock exchange within 6 months of its subscriptions.
 Units of close ended schemes can be opened for redemption at a fixed interval.
 The AMC shall specify in the offer document the minimum subscription to be
raised under the scheme.
 The AMC may repurchase, reissue the units of close ended schemes.
 The units of close ended schemes can be converted into open ended schemes.
 Any schemes on mutual fund shall not be opened for subscription after 45
days.
 The mutual fund and AMC shall be liable to refund the application money to
the application if minimum subscription is not received.

10.  Exchange Traded Funds (ETFs) are mutual fund units which
investors buy or sell from the stock exchange, as against a normal
mutual Fund unit, where the investors buys/sells through a
distributor or directly from the AMC.
 The ETFs have relatively lesser costs as compared to a mutual fund
scheme.
 The EFTs structure is such that the AMC does not have to deal
directly with investors or distributors. It instead issues units to a
few designated large particulars, who are also called as authorized
participants (APs), who in turn act as market for the ETFs.
 The authorized Participants provides two ways quotes for the ETFs
on the stock exchange, which enables investor to buy and sell the
ETFs at any given point of time when the stock markets are open
for trading

11.  Prices are available on real time and the ETFs can be
purchased through a stock exchange broker just like one
would buy/sell shares. There are huge reductions in
marketing expenses and commissions in case of ETFs.
 Assets in ETCs: Practically any assets class can be used to
create ETFs. Globally there are ETFs on Silver, Gold, Indices
etc. In India, we have ETFs on Gold, Indices such as Nifty,
Bank Nifty etc..

12.  Phase I- 1964 - 87: In 1963, UTI was set up by Parliament
under UTI act and given a monopoly. The first equity fund
was launched in 1986.
 Phase II-1987-93: Non-UTI, public sector mutual funds.
like-
SBI Mutual fund
Can Bank Mutual fund,
LIC Mutual Fund,
India Bank Mutual Fund,
GIC Mutual Fund,
PNB Mutual Fund

13.  Phase III-1993-96: Introducing private sector funds. As
well as open-end Funds.
 Phase IV-1996: Investor Friendly regulatory measures
action taken by SEBI to protect the investor, and to
enhance investor’s return through tax benefits.

14.  Every mutual fund shall be registered with SEBI through
an application to be made by the sponsor in a prescribed
format accompanied by an application fee of Rs. 25000.
 Every mutual fund shall pay Rs.25 lakhs towards
registration fee and Rs. 2.5 lakhs per annum as services
fees.
 Registration shall be granted by the board on fulfillment of
conditions such as sponsor’s sound track record of 5 yrs
integrity, net worth etc.

15.  The regulation governing the functioning of mutual funds
in India were introduced by SEBI in Dec 1996.
 The objective of these regulation was to bring in existence
the regulatory norms for the formation, operation and
management of mutual funds in India.
 The regulation also laid down the board guidelines on
investment valuation, investment restriction, advertising
code of conduct for mutual funds and AMCs.

16. MUTUAL FUNDS
By Maturity Period
By investment
Objective
Open ended Close ended Equity Balance fund
Gift
fund
Money
market
Index
fund
Income

17.  Open-ended Fund: An open- ended Mutual fund is one that
is available for subscription and repurchase on a
continuous basis. These Funds do not have a fixed
maturity period.
 Close- ended Fund: A close- ended Mutual fund has a
stipulated maturity period e.g. 5-7 years. The fund is open
for subscription only during a specified period at the time
of launch of the scheme.

18.  Balanced Fund: The aim of balanced funds is to provide
both growth and regular income as such schemes invest
both in equities and fixed income securities in the
proportion indicated in their offer documents.
 Money Market : These funds are also income funds and
their aim is to provide easy liquidity, preservation of
capital and moderate income. Instruments like treasury
bills, commercial paper, and government securities etc.
 Gift Funds: These funds invest exclusively in government
securities. Government securities have no default risk.

19.  Index Funds: This schemes invest in the securities in the same
weightage comprising of an index. This schemes would rise or
fall in accordance with the rise or fall in the index.
 Growth/Equity Oriented Scheme : The aim of growth fund is to
provide capital appreciation over the medium to long-term.
Such fund have comparatively high risks. These schemes
provide different options to the investors like dividend option,
capital appreciation, etc..
 Income/ Debt Oriented Scheme: The aim of income funds is to
provide regular and steady income to investors. Such schemes
generally invest in fixed income securities such as bonds,
corporate debentures, Government securities and money
market instrument. Such funds are less risky compared to
equity schemes.

20.  State Bank of India mutual fund
 ICICI prudential mutual fund
 TATA mutual Fund
 HDFC mutual fund
 Birla sun life mutual fund
 Reliance mutual fund
 Kotak Mahindra mutual fund etc…

21.  A portfolio of Mutual fund scheme is the basket of financial
assets it holds.
 It consists of investments diversified in different securities
and assets classes which help reduce the overall risk.
 A mutual fund scheme states the kind of portfolio it seeks
to construct as well as the risk involved under each assets
class.

22. Investment Objective.
Portfolio Construction.
Security Selection.
Investment.
Portfolio Optimize.

23. Financial Goals
Identify ‘What to Buy’
Evaluate Funds from various Mutual Funds Cos.
Mutual Fund co. and other
Fill Up Form
Attach Relevant Documents
Online Offline
Financial Distribution
submit

24. Choose ‘Redemption’
Fill-up relevant details
(You could do partial redemption as well)
Sign the Form
(All applicants to the units need to sign)
Submit
(Submit the form to the branch of the specific Mutual Fund Company)
Money into your Bank Account
(Money gets credited to you as per the scheme-specific turnaround time)
Download Common Transaction Slip
(download from Mutual Fund Company’s website or get it from the
branch

25.  No Insurance.
 Dilution.
 Fees and Expenses.
 Poor performance.
 Loss of control.
 Trading limitations.
 Inefficiency of cash Reserves.
 Too many choices.

26.  Moneycontrol.com
 Wikipedia.co.in