MUTUAL FUNDS

By
ARUN M JAMES
DHANYESH NAIK S
 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
8.
 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 19th Centuary
• MF emerged in U.K. and in U.S as
investment management institutions in
early 20th 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 :-
v First phase(1963-87)
v Second phase (1987-93)
v Third phase (1993-2003)
v Fourth 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 of a given scheme on any given
business date.
• 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 HDFC Mutual Fund

Chola Mutual Fund
HSBC Mutual Fund
Deutsche Mutual Fund
ING Vysya Mutual Fund
DSP Merrill Lynch Mutual Fund
Kotak Mahindra Mutual FundFranklin Templeton Inve
Escorts Mutual FundLIC Mutual Fund
HDFC Mutual Fund
Prudential ICICI Mutual Fund
HSBC Mutual Fund
Reliance Mutual Fund

SBI Mutual Fund

ING Vysya Mutual Fund
Kotak Mahindra Mutual Fund
Franklin Templeton Investments


Growth of Assets Under
Management
 ROLE AND ACTIVITIES OF 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:

v To promote and protect the interests of Mutual Funds and their

unit holders.

v To define and maintain high ethical and professional standards

in the industry.

v To enhance public awareness of Mutual Funds.

v To 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 with other people to convert it into
funds.
• 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.