MUTUAL

FUNDS

CONCEPT

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.

MUTUAL FUND OPERATION

FLOW CHART
Given back to

Investors

Return

That generates

Pool their money in

Fund

Securities

Which is invested in

ADVANTAGES OF MUTUAL
FUNDS

TYPES OF MUTUAL FUNDS

No matter what type of investor you are, there is bound to be a

mutual fund that fits your style.
It's important to understand that each mutual fund has different
risks and rewards. In general, the higher the potential return, the
higher the risk of loss. Although some funds are less risky than
others, all funds have some level of risk - it's never possible to
diversify away all risk. This is a fact for all investments.
Each fund has a predetermined investment objective that tailors
the fund's assets, regions of investments and investment
strategies. At the fundamental level, mutual funds can be
classified on three parameters:
1) On the basis of structure.
2) On the basis of investment objective.
3) On the basis of special schemes.

TYPES OF MUTUAL FUNDS

Type of
Mutual Fund
Schemes

Structure

Investment
Objective

Special
Schemes

Open Ended
Funds

Growth Funds

Industry Specific
Schemes

Close Ended
Funds

Income Funds

Index
Schemes

Balanced Funds

Sectoral
Schemes

Money Market
Funds

ON THE BASIS OF
STRUCTURE
Open ended Schemes
Closed ended Schemes.

OPEN ENDED SCHEMES

Open ended Schemes are schemes which offers
unit for sale without specifying any duration for
redemption.
They sell and repurchase schemes on a continuous
basis.
The main feature of such kind of scheme is liquidity

CLOSED ENDED SCHEMES

These are the schemes in which redemption period
is specified.
Once the units are sold by mutual funds, then any
transaction takes place in secondary market only i.e
stock exchange.
Price is determined by forces of market.

ON THE BASIS OF GROWTH

OBJECTIVE
Growth funds
Income funds
Balanced Funds
Money Market funds

GROWTH FUND

The aim of growth funds is to provide capital

appreciation over the medium to long- term. Such
schemes normally invest a major part of their
corpus in equities. Such funds have comparatively
high risks

INCOME FUNDS

Funds that invest in medium to long-term debt

instruments issued by private companies, banks,
financial institutions, governments and other entities
belonging to various sectors (like infrastructure
companies etc.) are known as Debt / Income Funds

BALANCED FUND
These funds provide both growth and regular
income as these schemes invest in debt and equity.
The NAV of these schemes is less volatile as
compared pure equity funds.

MONEY MARKET FUNDS

Money market / liquid funds invest in short-term

(maturing within one year) interest bearing debt
instruments. These securities are highly liquid and
provide safety of investment, thus making money
market / liquid funds the safest investment option
when compared with other mutual fund types.

ON THE BASIS OF SPECIAL

SCHEMES
Industry Specific Schemes
Index Schemes
Sectoral Schemes.

INDUSTRY SPECIFIC SCHEMES

Industry Specific Schemes invest only in the

industries specified in the offer document. The
investment of these funds is limited to specific
industries like Infotech, FMCG, Pharmaceuticals etc

INDEX SCHEMES
In this schemes, the funds collected by mutual
funds are invested in shares forming the Stock
Exchange Index.
Example- Nifty Index Scheme of UTI Mutual Fund
and Sensex Index Scheme of Tata Mutual Fund.

SECTORAL SCHEMES
Sectoral funds are those mutual funds which
invest in a particular sector of the market,
e.g. banking, information technology etc.
Sector funds are riskier than equity
diversified funds since they invest in shares
belonging to a particular sector which gives
them fewer diversification opportunities

OTHER SCHEMES
Gilt Security Schemes
Funds of Funds
Domestic Funds
Tax Saving Schemes.

INVESTMENT STRATEGIES
Systematic

Investment Plan (SIP)

Invest a fixed sum every month. (6 months to 10
years- through post-dated cheques or Direct Debit
facilities)
Fewer units when the share prices are high, and more
units when the share prices are low.
Convenience and Discipline are the benefits of SIP.

Systematic

Withdrawal Plan (SWP)

Is a facility provided by a mutual fund to withdraw
money on a regular basis.

MUTUAL FUNDS IN INDIAN CAPITAL MARKET

First

Phase 1964-87

Unit Trust of India (UTI) was established on 1963 by an Act of

Parliament. At the end of 1988 UTI had Rs.6,700 crores of
assets under management.

Second Phase1987-1993( Entry of Public Sector Funds)

SBI MF marked the entry of non- UTI, public sector mutual
funds set up by public sector banks and Life Insurance
Corporation (LIC) and General Insurance Corporation of India
(GIC). SBI Mutual Fund was the first non- UTI Mutual Fund
established in June 1987. At the end of 1993, the mutual fund
industry had assets under management of Rs.47,004 crores.

Third Phase-1993-2003(Entry of Private Sector Funds)

1993 was the year in which the first Mutual Fund Regulations
came into being, under which all mutual funds, except UTI
were to be registered and governed. The erstwhile Kothari
Pioneer (now merged with Franklin Templeton) was the first
private sector mutual fund registered in July 1993. As at the
end of January 2003, there were 33 mutual funds with total
assets of Rs. 1,21,805 crores.
Fourth Phase since February 2003
There have been several amalgamation of mutual funds. The
MF have also become popular among retail investors. There
were 28 mutual funds operating in India in April,2005.

GROWTH IN MF INDUSTRY IN INDIA

The size of Indian mutual fund industry has grown

in recent few years. The total AUM has increased
from Rs.1, 01, 565 crores in January 2000 to Rs.5,
67, 601.98 crores in April 2008. As on august end
2000, there were 33 Funds with 391 schemes and
assets under management with Rs 1, 02,849
crores. There are 34 Mutual Fund organizations in
India managing 1,02,000 crores.

Indian Mutual Funds Future - Growth Facts

In the past 6 years, Mutual Funds in India have
recorded a growth of 100 %.
One of the major factors contributing to the growth
of this industry has been the booming stock market
with an optimistic domestic economy.
Second most important reason for this growth is a
favorable regulatory regime which has been
enforced by SEBI. This regulatory board has
improved the market surveillance to protect the
investors interest.
In India, the rate of saving is 23 %.

Future of Mutual Funds in India - An Overview

Financial experts believe that the future of Mutual
Funds in India will be very bright. It has been
estimated that by March-end of 2010, the mutual fund
industry of India will reach Rs 40,90,000 crore, taking
into account the total assets of the Indian commercial
banks. The estimation was based on the December
2004 asset value of Rs 1,50,537 crore. In the coming
10 years the annual composite growth rate is
expected to go up by 13.4%. Since the last 5 years,
the growth rate was recorded as 9% annually. Based
on the current rate of growth, it can be forecasted that
the mutual fund assets will be double by 2010.