Jobi Mathai

1. MUTUAL FUNDS
JOBI MATHAI

2. Introduction
• Mutual funds are financial intermediaries
which collects funds from the public and
invest them in a diversified portfolio of
securities, including equity, bonds, debentures
and other instruments issued by business or
govt: undertakings.
• Helps small investors to participate in the
securities market indirectly & thus help in
spreading & reducing risk.

3. Contd….
• Direct participation in securities market is not
attractive to small investors because of the
introduction of proportionate allotment, the
increase in the minimum application amount
to Rs. 5000 and the free pricing of issues.
Investment through Mutual funds enables the
investors to maximize the return on the
investment in equity shares.

4. In simple words…
• Mutual funds collects the savings from small
investors, invest them in govt: & other
corporate securities and earn income through
interest and dividends, besides capital gains.

5. Definition.
• The Securities and Exchange Board of India
(Mutual funds) Regulations, 1993 defines a
Mutual funds as a “ fund established in the
form of a trust by a sponsor, to raise monies
by the trustees through the sale of units to the
public, under one or more schemes, for
investing in securities in accordance with
these regulations.

6. Mutual funds
• Unit trust in U.K.
• Open end investment companies in the U.S.A

7. Organization of Mutual funds
• Mutual fund organization consists of :
a) Sponsor.
b) Mutual fund Trust.
c) Asset Management Company (AMC) &
d) Custodian.

8. Sponsor
• Sponsor for the Mutual funds could be a
company registered under the Companies Act
Mutual funds , 1956.
• Can be either public ltd company or a pvt ltd
company.
• One or more public ltd companies and a pvt
ltd companies can join to sponsor a Mutual
fund.

9. Contd..
• The sponsor should satisfy certain conditions
like:
• Track record
• Experience in the relevant field of financial
services for a minimum period of 5 years.
• Financial soundness etc.
• Should be able to contribute not less than 40
per cent of the net worth of the asset
management company.

10. Contd..
• Sponsors have to appoint the fund managers
or the asset management company.
• But after obtaining permission from SEBI the
role of sponsor diminishes and it is the trust
that will deal with SEBI after that stage.

11. Mutual fund Trust.
• Created by the sponsors under the Indian Trust
Act,1882.
Functions:
a. Planning & formulating Mutual fund schemes.
b. Obtaining SEBI’s approval for these schemes.
c. Marketing the schemes for public subscription.
d. Ensuring that AMC complies with the guidelines,
and report periodically to the unit holders of the
Mutual funds .

12. Mutual fund Trust.
e. Ensuring that investments by AMC are
according to prescribed guidelines.
f. Ensuring that the securities are safety kept in
custody with the approved custodian.
g. Ensuring that the income on investment is
properly accounted.
h. Submitting an annual report to the unit
holders or members of the fund.

13. Asset Management Company (AMC)
• Investing of collected funds is the
responsibility of the AMC.
• Takes investment decisions and makes
investment either directly in the primary
market or through brokers in the secondary
market.
• Duty to maintain proper accounts and give
necessary information regarding investments
and fund management operations to the
trustees.

14. Custodian
• The Custodians have the custody of
investments.
• Duty to check and verify the securities.
• Also deal with transfer of shares, settlements
etc.
• Acts as an transfer agents by attending to
transfer, exchange, redemption, receipt of
dividends, maintenance of detailed records of
transactions etc.

15. Working of Mutual funds
i. It collects money from the investors under
different schemes.
ii. Investing the money so collected in various
instruments like stocks and bonds of
different corporates and govt: units.
iii. Distribution of profits to the investors or
members of the Mutual fund. According to
SEBI guidelines the Mutual funds have to
distribute 90% of their earnings.