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MMUUTTUUAALL

FFUUNNDDSS

ByBy

ARUN MM JAMES

ARUN

JAMES

DHANYESH

DHANYESH NAIK

NAIK SS

MEANING

Mutual funds are basically investment funds where the investment companies collect money from the investors and invest the same in various stocks of different companies and government bonds.

Definition

According to SEBI (mutual funds) Regulations Act 1993 defines mutual fund 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.”

CONCEPTS

A

Mutual Fund is

a

trust that pools

the savings of a number

of

investors who share a common financial goal.

 

The

money

thus

collected

is

then

invested

in

capital

market

instruments such as shares, debentures and other securities.

 

The income earned through these investments and the capital appreciation realised are shared by its unit holders in proportion to the number of units owned by them.

Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost.

Organisation of a Mutual Fund

Features

1. MF is a Trust

  • 2. A Financial Intermediary

  • 3. Investors gets back units of MF in return for the money invested

  • 4. Dealings in funds are on the basis of the Net Mkt Value of the investment.

  • 5. MF are redeemable

  • 6. Dividend is paid out to the unit holders

  • 7. Professionally qualified fund managers

ADVANTAGES

Professional Management

Diversification of portfolio

Convenient Administration

Return Potential

Low Costs

Liquidity for some schemes

Transparency

Flexibility

Choice of schemes

Tax benefits

Well regulated

Disadvantages

MFs are subject to market fluctuation

No fixed return

Entry and exit load

No Guarantees

Management Risk

REGULATIONS

Governed by SEBI (Mutual Fund) Regulation 1996

All MFs registered with it, constituted as trusts ( under Indian Trusts Act, 1882)

Bank operated MFs supervised by RBI too

AMC registered as Companies registered under Companies Act, 1956

SEBI- Very detailed guidelines for disclosures in offer document, offer period, investment guidelines etc.

NAV to be declared everyday for open-ended, every week for closed ended

Disclose on website, AMFI, newspapers

Half-yearly results, annual reports

TYPES OF MUTUAL FUNDS

By Structure

Open-Ended – anytime enter/exit

Close-Ended Schemes – redemption after period of scheme is over, listed.

By Investment Objective

Equity (Growth) – only in Stocks – Long Term (3 years or more) Debt (Income) – only in Fixed Income Securities (3-10 months)

– – Liquid/Money

Market

(including

gilt)

Short-term

Money

Market (Govt.)

Other Schemes

• Tax Saving Schemes • Special Schemes

– Index Schemes. – Sector specific Schemes – Offshore scheme – Unit Linked Insurance Policy (ULIP)

Origin and development of MF

• Origin in 19 th Centuary

• MF

emerged

in

U.K. and

in

U.S

as

investment management institutions in early 20 th Centuary.

• In

1822

an

investment

trust

called

“Societe General de Belgigue” was

formed in Belgium.

• In

1868

Foreign

and Colonial

Government Trust was established in U.K.

INDIAN MUTUAL FUND INDUSTRY

The mutual fund industry in India started in 1963 with the formation of Unit Trust of India.

The history of mutual funds in India can be broadly divided into four distinct phases :-

vFirst phase(1963-87) vSecond phase (1987-93) vThird phase (1993-2003) vFourth phase (since FEB 2003)

First phase (1963-87)

Established in 1963.

It was set up RBI and functioned under the regulatory authority of RBI.

In 1978 UTI was de-linked from the RBI and IDBI took over the regulatory and administrative control.

The first scheme launched by UTI was Unit Scheme 1964 (US 64).

Second phase (1987-93)

• Entry of Public Sector Funds.

• Public sector banks, LIC, GIC were

entered the industry.

SBI Mutual Fund was the first non- UTI

Mutual Fund established in June 1987.

Third phase (1993-03)

• Entry of Private Sector Funds.

• Kothari pioneer(now merged with Franklin

Templeton) was the first private sector

fund to be registered.

Fourth phase (since Feb 03)

In February 2003, following the repeal of the Unit Trust of India Act 1963 UTI was bifurcated into two separate entities.

1. Undertaking of the Unit Trust of India- with assets under management of Rs.29,835 croresas at the end of January 2003, representing broadly, the assets of US 64 scheme It functions under the rules framed by GOI and does not come under the purview of the Mutual Fund Regulations.

2. The

second is

the UTI

Mutual

Fund, sponsored by SBI,

PNB, BOB and LIC - registered with SEBI and functions under the

Mutual Fund Regulations

AMC- Asset management Companies

An AMC is involved in the daily administration and also acts

as

investment

advisor

for

the

fund.

promoted by a sponsor which usually is a reputed corporate entity with sound record of profits.

Typically has three departments:

 

vFund Management vSales & Marketing vOperations & Accounting

Net Asset Value (NAV)

The net asset value (NAV) is the market value of the fund's underlying securities. Calculated at the end of the trading day.

Actual value of one unit business date.

of a given scheme on any

given

Reflects

the

liquidation

value

of

the

fund's

investments on that particular day after accounting for all

expenses

Market value of Assets - Liabilities

 

NAV =

--------------------------------------------------

 

(per unit)

Units Outstanding

Sale Price

Is the price which are paying when investing in a scheme. Also called offer price. It may include Sales load.

Sales Load

Is a charge collected by a scheme when it sells the units. Also called, ‘Front end’ load. Schemes do not charge load are called ‘No load schemes’.

Repurchase Price

Price at which units under which open-ended schemes are repurchased by the mutual fund. Such prices are NAV related

SIP- Systematic Investment Plan

It is a method of investing in a mutual fund.

SIP allows the investor to buy units on a given

date every month. The investor decides the amount and also the mutual fund scheme.

Major players in Indian mutual fund industry

Birla Mutual Fund BOB Mutual Fund Canbank Mutual Fund Chola Mutual Fund Deutsche Mutual Fund

HDFC Mutual Fund HSBC Mutual Fund ING Vysya Mutual Fund

DSP Merrill Lynch Mutual Fund

Kotak Mahindra Mutual FundFranklin Templeton Inv

Escorts Mutual FundLIC Mutual Fund

Prudential ICICI Mutual Fund Reliance Mutual Fund SBI Mutual Fund

HDFC Mutual Fund HSBC Mutual Fund ING Vysya Mutual Fund Kotak Mahindra Mutual Fund

Franklin Templeton Investments

Growth of Assets Under Management

ROLE

ROLE AND

AND ACTIVITIES

ACTIVITIES OF

OF AMFI

AMFI

AMFI is the industry association of all mutual funds operating in India. It is not Self-Regulatory Organization. It is a non-profit organization whose objectives are:

vTo promote and protect the interests of Mutual Funds and their unit holders.

vTo define and maintain high ethical and professional standards in the industry.

vTo enhance public awareness of Mutual Funds.

vTo represent industry views and suggestions to the Regulator, Government and the Central Bank

AMFI’s initiatives

Ø Launched

Certification

programme

since

July

2000

in

association with NSE

 

Ø Certification made mandatory from November 2001

 

Ø Launched

registration

of

certified

intermediaries

as

AMFI

Registered Mutual Fund Advisors (ARMFA)

Ø Provided a broad set of guidelines known as AMFI Guidelines and Norms for Intermediaries (AGNI)

Ø Registration of AMFI Certified Agents made mandatory from November 2002

Ø Extensive training programmes being conducted countrywide

Ä

Conclusion

• The basic principle underlying mutual fund is to pool

in money funds.

with

other people

to

convert it into

• A secure investment as the chance of loss is spread out, and the opportunity for gains are numerous.

• It is both cost- effective and an investment that gives great future returns.