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Introduction To Mutual Fund: Appa Institute of Engineering and Technology Department of MBA, Gulbarga
Introduction To Mutual Fund: Appa Institute of Engineering and Technology Department of MBA, Gulbarga
Introduction To Mutual Fund: Appa Institute of Engineering and Technology Department of MBA, Gulbarga
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 appreciations
realized are shared by its unit holders in proportion to the number of units
owned by them. Thus a mutual fund is 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. The
flow chart thus describes broadly the working of a mutual fund.
Trustees:
The mutual fund which is a trust is manage either by a trust company or
board of trustees and are governed by provision of the Indian trust act. It is
the responsibility of trustees to protect the interest of the investor , whose
fund is managed by amc trustees are appointed by the sponsorer.
Diversification
Diversification involves holding a wide variety of investments in a portfolio
so as to mitigate risks. Mutual funds usually spread investments across
various industries and asset classes, constrained only by the stated
investment objective. Thus, by investing in mutual fund, you can avail of the
benefits of diversification and asset allocation, without investing the large
amount of money that would be required to create an individual portfolio.
Professional management
Mutual funds employ experienced and skilled professionals, who conduct
investment research, and analyze the performance and prospects of
various instruments before selecting a particular investment. Thus, by
investing in mutual funds, you can avail of the services of professional
fund managers, which would otherwise be costly for an individual
investor.
Flexibility
Mutual funds offer a variety of plans, such as regular investment, regular
withdrawal and dividend reinvestment plans. Depending upon one’s
preferences and convenience, one can invest or withdraw funds, accordingly.
Cost Effective
Since mutual funds have a number of investors, the fund’s transaction costs,
commissions and other fees get reduced to a considerable extent. Thus,
owing to the benefits of larger scale, mutual funds are comparatively less
expensive than direct investment in the capital markets.
Well Regulated
Mutual funds in India are regulated and monitored by the Securities and
Exchange Board of India (SEBI), which strives to protect the interests of
investors. Mutual funds are required to provide investors with regular
information about their investments, in addition to other disclosures like
specific investments made by the scheme and the proportion of investment
in each asset class.
Trading limitations
Although mutual funds are highly liquid in general, most mutual funds
(called open-ended funds) cannot be bought or sold in the middle of the
trading day. You can only buy and sell them at the end of the day, after
they've calculated the current value of their holdings.
Management risk
The investment pertaining to the Mutual Funds depends on the fund
manager and his selection of the mutual fund portfolio, which is based on
speculation. If things do not go as expected, the investments may not earn
enough money.
Management risk
The investment pertaining to the Mutual Funds depends on the fund
manager and his selection of the mutual fund portfolio, which is based on
speculation. If things do not go as expected, the investments may not earn
enough money.
No Guarantees
All investments bear risk factors. The Mutual Funds are no different. It
depends on the stock market. A fall in the stock market would trigger a fall
in the value of the mutual fund shares. Although the risk factor pertaining to
Mutual funds are much lower compared to Mutual Funds.
Taxes
The proceeds from the sale of mutual funds are taxable, even if the same is
reinvested in mutual funds.
No Insurance
The Mutual funds are regulated by the central government. However mutual
funds are still not insured against losses.
The Unit Trust of India (UTI) was established in the year 1963 by
passing an act in the parliament.
The UTI was setup by the Reserve Bank of India (RBI) and functional
under the Regulatory and Administrative control of the RBI.
The First scheme in the history of mutual fund was UNIT SCHEME-64,
which is popularly known as US-64.
In 1978, UTI was de-linked from RBI. The Industrial Development Bank
of India (IDBI) took over the Regulatory and Administrative control.
At the end of the year 1988, UTI had Rs.6700/-Crores of Assets under
Management.
In the year 1987, public sector Mutual Funds set up by public sector
banks, Life Insurance Corporation of India (LIC) and General Insurance
Corporation of India (GIC) and came into existence.
State Bank of India Mutual Fund was the first non-UTI mutual fund.
At the end of 1993, the entire mutual fund industry had assets under the
management of Rs.47, 004/-Crores.
In this time, the Mutual Funds industry has witnessed several Mergers
and Acquisitions.
The UTI with Rs.44, 541/-Crores. Of Assets Under the management was
way ahead of all others Mutual Funds.
Following the repeal of the UTI Act in February 2003, it was (UTI)
bifurcated into 2 separate entities.
One is the specified undertaking of the UTI with asset under management
of Rs.29, 835/- Cores as at the end o January 2003.
The second is the UTI Mutual Funds Limited, sponsored by State Bank
of India, Punjab National Bank, Bank of Baroda and Life Insurance
Corporation of India.
The UTI Mutual Funds Limited is registered with SEBI and functions
under the Mutual Funds Regulations.
With the bifurcation of the Erstwhile UTI, with the setting up of a UTI
Mutual Funds, confirming to the SEBI Mutual Fund Regulations and
with recent mergers taking place among different private sectors funds,
the Mutual Funds Industry has entered its current phases of consolidation
and growth.
At the end of September 2004, there were 29 funds, which manage assets
of Rs.153108/-Crores under 421 different schemes.
• It also recommends and promotes the top class business practices and
code of conduct which is followed by members and related people
engaged in the activities of mutual fund and asset management. The
agencies who are by any means connected or involved in the field of
capital markets and financial services also involved in this code of
conduct of the association.
Bank Sponsored
• SBI Fund Management Ltd.
• BOB Asset Management Co. Ltd.
• Can bank Investment Management Services Ltd.
• UTI Asset Management Company Pvt. Ltd.
Institutions
• GIC Asset Management Co. Ltd.
• Jeevan Bima Sahayog Asset Management Co. Ltd.
Private sector
Indian
• Structure
• Investment objective
Open-ended schemes
These funds do not have a fixed maturity and one can invest in such funds
on any working day, during business hours. Investors can buy or sell units of
open-ended schemes directly from the fund house at NAV related prices.
Close-ended schemes
Interval schemes
Growth schemes
Such funds are aimed at capital appreciation over the medium to long term.
Usually, such funds invest a major portion of the portfolio in equities.
Balanced schemes
Such funds have a balanced portfolio and invest in equity and preference
shares in addition to fixed income securities. The aim of such funds is to
provide both income and capital appreciation over a long-term.
Income schemes
Such schemes are aimed at offering tax rebates to investors under specific
provisions of the Income Tax Act, 1961. For instance, investors of Equity
Linked Savings Schemes (ELSS) and Pension Schemes are applicable for
deduction u/s 88 of the Income Tax Act, 1961.
Index schemes
Such funds strive to mirror the performance of specific market indices, such
as the BSE SENSEX, CNX Nifty, etc which are called the base index.
Investments in such funds are made in the same stocks as the base index and
in similar proportion.
Sector-specific schemes
Exchange-traded funds
3. The psyche of the typical Indian investor has been summed up by Mr.
S.A. Dave, Chairman of UTI, in three words; yield, Liquidity and Security.
The mutual funds, being set up in the public sector, have given the
impression of being as safe a conduit for investment as bank deposits.
Besides, the assured returns promised by them have investors had great
appeal for the typical Indian investor.
8. The mutual fund attracts foreign capital flow in the country and secures
profitable investment avenues abroad for domestic savings through the
opening of off shore funds in various foreign investors. Lastly another
notable thing is that mutual funds are controlled and regulated by S E B I
and hence are considered safe. Due to all these benefits the importance of
mutual fund has been increasing.
In this project we are study about the mutual fund role in financial
sources. Therefore we are captivating and observe mutual funds all
encircled opportunities and problems. We can say that mutual fund is
one the best investment option for investors. At the same time mutual
fund have some depressing aspects or problems. So those we are
taking into consideration.
Objectives
• To study the investor awareness level towards mutual funds.
• To identify the investor perception towards mutual funds
• To study mutual fund industry in India.
• To study the factors which affect investment in mutual funds?
• To analyze the promotional strategy of mutual fund companies
to generate the investment of investor in mutual funds
SOURCES OF DATA:
Primary Data
The primary data has been collected from discussions with the officials of the
company and through questionnaire.
Secondary Data
The secondary data for this study was collected from News Papers,
Magazines, Internet, and Text Books etc.