MUTUAL FUND

MUTUAL FUND
Mutual fund collects the savings from small
investors, invest them in government and
other corporate securities and earn income
through interest and dividends
It is formed by pooling together the funds from
large number of investors by a professionally
qualified organisation to manage it
Each fund is divided into a small fraction
called units of equal value

Each investor is allocated units in proportion to

the size of his investment. The investor,
whether big or small, will have a stake in the
fund and can enjoy the wide portfolio of
invest held by the fund
Thus mutual funds act as a gateway to enter
into big companies which is inaccessible to
an ordinary investor with his small
investment

FEATURES OF MUTUAL FUND

The ownership of the fund lies in the hands

of the investors
The management of the fund is in the hands
of investment professionals who earn a fee
for their services
The pool of funds collected is invested in a
portfolio of marketable securities
The investors share in fund is called units
Investment portfolio of MF is created
according to the objective of the fund

TYPES/CLASSIFICATION OF
FUNDS
MUTUAL FUND

On the basis
of operation

Open
ended

On the basis
of yield

Close
ended

Income Growth Balance

Specialised

Money market Taxation

CLOSE ENDED FUNDS

The fund,its duration and number of units are
prefixed in this scheme. Once the
subscription reaches the predetermined level
the entry of investors is closed.
After the expiry of the fixed period, the entire
fund is disinvested and distributed to the
various unit holders in proportion to their
holding

FEATURES CLOSE ENDED

The period and the amount of fund is fixed
Units are publicly traded through stock
exchange
Once the target period is reached,the door
to the investors is closed
No repurchase facility by the fund
No redemption before maturity
Main objective is capital appreciation
The fund is liquidated at the time of
redemption

OPEN ENDED FUNDS

Opposite to close ended funds. The size,period of
the fund is not predetermined.
The investors are free to buy and sell any number of
units at any point of time
FEATURES
Free entry and exit to investors
Units are not publically traded
Fund is ready to repurchase and resell at any time
Instant liquidity to the units since it can be sold
on any working day
Main objective is income generation

ON THE BASIS OF YIELD

Income funds :This fund aims at generating

and distributing regular income to the
members on periodical basis
Growth funds : It concentrates mainly on
long run gains i.e capital appreciation. They
do not offer regular income
Balanced funds : Also called as income-cumgrowth fund. It is the combination of income
and growth funds i.e offers regular income as
well as capital appreciation

Specialised funds : This fund offers special

schemes to meet special needs of specific
categories of people like pensioners, widows
etc and for special areas or sectors
Money Market Mutual Fund(MMMF) : These
are open ended schemes which invest in
highly liquid assets i.e in money market
instruments like commercial paper,
commercial bill, certificate of deposites etc
Taxation funds : These are basically growth
oriented funds which offers tax rebates to
the investors either in domestic or foreign
markets

IMPORTANCE OF MUTUAL
FUND/ADVANTAGES

Channelising savings for investment

Offering wide portfolio investment
Providing better yields
Rendering Expertised Investment Service at
low cost
Providing research service
Offering tax benefits
Introducing flexible investment schedule

Simplified record keeping

Supporting capital market
Promoting industrial development
Acting as a substitute for Intial Public
Offerings(IPO)
Reducing the cost of new issues
Keeping the money market active

ORGANISATION OF FUND
The structure of mutual fund operates in India
envisages a three tier establishment;
1. Sponsoring Institution
2. Trustees
3. Asset Management Company(AMC)

FACTORS FOR SELECTING FUND

Objective of the fund

Consistency of performance
Historical background
Cost of operation
Capacity for innovation
Investor servicing
Market trends
Transparency of the fund management

NAV(NET ASSET VALUE)

NAV is the market price of each unit of a

particular scheme in relation to all the assets
of the scheme
Also called as intrinsic value
It is the true indicator of the performance of
the fund
If NAV > Facevalue of units--- good
performance and viceversa