MUTUAL

FUNDS
TOPICS COVERED
 Concept
 Types of Mutual Fund Schemes

 Advantages of Mutual Funds

 Organisation of a Mutual Fund

 Investment Strategies

 Mutual Fund Market in India

 Growth of Mutual Fund Industry in India

 Future of Mutual Fund in India

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

Investors
Given back to
Pool their money in

Return Fund

That generates Which is invested in

Securities
ADVANTAGES OF MUTUAL FUNDS
 Advantages of investing in a Mutual Fund
• Affordability
A mutual fund invests in a portfolio of assets, i.e. bonds, shares, etc.
depending upon the investment objective of the scheme. An investor can
buy in to a portfolio of equities, which would otherwise be extremely
expensive. Each unit holder thus gets an exposure to such portfolios with
an investment as modest as Rs.5000/-.
• Diversification
We must spread our investment across different securities
(stocks, bonds, money market instruments, real estate, fixed deposits etc.)
and different sectors (auto, textile, information technology etc.).
• Variety
Mutual funds offer a tremendous variety of schemes.
• Professional Management
Qualified investment professionals who seek to maximize returns and
minimize risk monitor investor's money.
•Transparency

Being under a regulatory framework, mutual funds have to disclose

their holdings, investment pattern and all the information that can be
considered as material, before all investors. SEBI acts as a watchdog
and safeguards investors’ interests

• Liquidity

A distinct advantage of a mutual fund over other investments is that

there is always a market for its unit/ shares. It's easy to get one’s
money out of a mutual fund. Redemptions can be made by filling a
form attached with the account statement of an investor.
 Risks Associated with Mutual Funds

• Professional Management- Some funds don’t perform in the market, as

their management is not dynamic enough to explore the available opportunity in
the market.
• Costs – The biggest source of AMC income is generally from the entry & exit load
which they charge from investors, at the time of purchase. The mutual fund
industries are thus charging extra cost under layers of jargon.
• Dilution - Because funds have small holdings across different companies, high
returns from a few investments often don't make much difference on the overall
return.
• Taxes - when making decisions about your money, fund managers don't consider
your personal tax situation. For example, when a fund manager sells a security, a
capital-gain tax is triggered, which affects how profitable the individual is from the
sale.
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

Special
Investment
Structure Schemes
Objective

Open Ended Industry Specific

Growth Funds
Funds Schemes
Close Ended Index
Income Funds
Funds Schemes
Sectoral
Balanced Funds
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.

ORGANISATION OF A MUTUAL FUND
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
investor’s interest.
 In India, the rate of saving is 23 %.
 In the future, there lies a big scope for the Indian Mutual
Funds industry to expand.
 Several asset management companies which are
foreign based are now entering the Indian markets.
 A number of commodity Mutual Funds will be introduced
in the future. The SEBI (Securities Exchange Board of
India) has granted the permission for the same.
 More emphasis is put on the effective Mutual Funds
governance.
 There is also enough scope for the Indian Mutual funds
to enter into the semi-urban and rural areas.
 Financial planners will play a major role in the Mutual
Funds market by providing people with proper financial
planning.
FUTURE OF MF IN INDIA
 Byend of 2012, the mutual fund industry of
India will reach Rs 40,90,000 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.
 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.