MUTUAL FUND AND ITS TYPES

TYPES OF MUTUAL FUND SCHEMES

By Investment
Objective

By Maturity
Period

Open
ended

Close
ended

by: Gurmeet Singh

Mutual
Funds

Equity

Income

Balance
fund
Money
market

Gilt
fund
Index
fund

Schemes according to Maturity

Period

A mutual fund scheme can be classified into open-ended

scheme or close-ended scheme depending on its
maturity period.

Open-ended
Fund

An open-ended Mutual fund is one that is available for subscription

and repurchase on a continuous basis. These Funds do not have a
fixed maturity period.

close-ended
Fund
A close-ended Mutual fund has a stipulated maturity period e.g.
5-7 years. The fund is open for subscription only during a specified
period at the time of launch of the scheme.

Fund according to Investment

Objective
A scheme can also be classified as growth fund, income
fund, or balanced fund considering its investment
objective.

Growth / Equity
Oriented Scheme
The aim of growth funds is to provide capital appreciation over the
medium to long- term.
Such funds have comparatively high risks.
These schemes provide different options to the investors like
dividend option, capital appreciation, etc.

Income / Debt
Oriented Scheme
The aim of income funds is to provide regular
and steady income to investors.
Such schemes generally invest in fixed
income securities such as bonds, corporate
debentures, Government securities and
money market instruments.
Such funds are less risky compared to
equity schemes

Balanced Fund
The aim of balanced funds is to provide both
growth and regular income as such schemes
invest both in equities and fixed income
securities in the proportion indicated in their
offer documents.
These are appropriate for investors looking for
moderate growth.

Money Market/Liquid
Fund
These funds are also income funds and their
aim is to provide easy liquidity, preservation of
capital and moderate income.
These schemes invest exclusively in safer
short-term instruments such as treasury bills,
commercial paper and government securities,
etc.
These funds are appropriate for corporate and
individual investors as a means to park their
surplus funds for short periods.

Gilt Funds
These funds invest exclusively in government
securities.
Government securities have no default
risk.

Index Funds
This schemes invest in the securities in the
same weightage comprising of an index.
This schemes would rise or fall in
accordance with the rise or fall in the index

RIGHTS OF MUTUAL FUND HOLDERS

1) Purchasing Proceedings: MF holders have the right to get
various schemes opened for have for ongoing sale / re-purchase
within 5 business days of allotment.
2) Delay in dispatch of redemption or repurchase
proceedings:-As per rule, mutual fund companies need to
process requests within 10 working days. If delay occurs then
they are liable to pay investor interest of 15% PA as delay cost.
3) Unclaimed
redemption
amount-Any unclaimed
redemption amount shall be invested in money market
instruments. If investor claims within 3 years then payment
should be made according to prevailing NAV. But if investors
failed to claim within 3 years then the money will be pool
account. Whenever investor claims for this amount NAV of 3rd
year end will be payable.

4. Account Statement dispatch-Mutual Funds shall

dispatch Statement of Accounts within 5 business days
from the closure of the NFO(new fund offers).
5. Change of distributor or Adviser-In case investor
requested to change distributor or want to go directly
then mutual funds need to do so without compelling
investor to taken No Objection Certificate from existing
distributor.
6. Mailing of Annual Reports-Mutual Funds need to
send their annual reports to your registered mail id. If
mail id not available then they need to send you physical
copy to your registered address.

7. Nominee-Investor can appoint upto 3 nominees and

need to mention % of share in the event of his demise. If
% of share not mentioned then equal distribution will
be done.
8. Dematerialised form-Investor have option to keep
investments either in Dmat form or in physical form. So
according to his wish Mutual Funds has to co-ordinate
with depository to facilitate this.
9. Scheme Portfolio-The mutual fund has to publish a
complete statement of the scheme portfolio and the
unaudited financial results, within 1 month from the
close of each half year.

10. Change in Fundamental Attributes of SchemeA written communication about the proposed change is
sent to each Unit-holder, and an advertisement is
issued in an English daily Newspaper having
nationwide circulation, and in a newspaper published
in the language of the region where the head office of
the mutual fund is located.

FACILITIES AVAILABLE TO INVESTORS

Mutual funds provide following facilities to the investors :
(i) Repurchase Facilities
The units of closed ended schemes must be compulsorily listed
in recognized stock exchanges. Such units can be sold or bought
at market prices. But, units of open ended schemes are not at all
listed and hence they have to be subscribed or bought only from
the fund. So, the fund reserves the right to buy back the units
from its members. This process of buying back the units from
the investors by the fund is called repurchase facility. This is
available in both schemes so as to provide liquidity to investors.
The price fixed for this purpose is called repurchase price.
(ii) Reissue Facilities
In the case of open ended schemes, units can be bought only
from the fund and not in the open market. The units bought
from the investors are again reissued to those who are
interested in purchasing them. The price fixed for this purpose
is called re-issue price.

iii) Roll Over Facilities

At the time of redemption, the investor is given an option to
reinvest his entire investment once again for another term.
An investor can overcome an adverse market condition
prevailing at the time of redemption by resorting to this roll
over facility.
(iv) Lateral Shifting Facilities
Some mutual funds permit the investors to shift from one
scheme to another on the basis of the Net Asset Value with a
view to providing total flexibility in their operation. This is
done without any discount on the fund and without any
additional charges. This is a great privilege given to the
investors. This shifting is called lateral shifting.
The NAV is nothing but the market price of each unit of a
particular scheme in relation to all the assets of the scheme.
It can otherwise be called the intrinsic value of each unit.

STRUCTURE OF MF OPERATIONS IN INDIA

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
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.
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 280 mutual funds operating in
India in April,2015.

GROWTH IN MF INDUSTRY IN INDIA

The size of Indian mutual fund industry has grown
in recent few years.

The total AUM (assets under Mgt) has increased

from Rs.1, 01, 565 crores in January 2009 to Rs.5,
67, 601.98 crores in April 2014.
As on august end 2013, there were 190 Funds with
1870 schemes and assets under management with
Rs 1, 02,849 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 %.

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.