MUTUAL FUND is a type of financial vehicle made
up of a pool of money collected from many
investors to invest in securities like stocks, bonds,
money market instruments, and other asset.
-is the portfolio of stocks, bonds, or other securities
that generate profits for the investor, or
shareholder of the mutual fund.
-is a pool of money from the public that is invested
with an expectation of a profit.
-it is also called POOLED/MANAGED FUND because
of the way it invites people to invest.
MUTUAL FUND COMPANY is an investment
company that receives money from investors for
the sole purpose to invest in stocks, bonds, and
other securities for the benefit of the investors.
SECURITIES the money that is gathered is used to buy
and sell (trade)
-these are assets that have the potential to grow
such as stocks or bonds.
PHILIPPINE STOCK EXCHANGE where stocks can be
bought or sold.
[BONDS vs. STOCKS] The main difference between
stocks and bonds is that stocks give you partial
ownership in a corporation, while bonds are a loan
from you to a company or government
FUND MANAGER -So if there is a need to buy and
sell stocks and bonds, who does the trading? It’s
the fund manager that does all that. Fund
managers are experts in securities and do the
trading in behalf of all the investors they will. In
exchange, investors pay annual fees and other
charges to cover for the operation of the fund
INVESTMENT OBJECTIVE- Fund managers however
cannot trade just any way they like. They are
bound to follow the investment objective found in
the prospectus.
PROSPECTUS- is a document that shares
information about the investment, its objective,
risks, costs, shares being offered, and other policies
EARNINGS OF MUTUAL FUNDS- They earn
depending on securities that they have invested in.
A bond fund can earn from interest. Remember
that a bond is a proof of debt and it works just like
any other debt where you receive interest when
you lend someone money. When it buys stocks, the
fund earns in two ways: dividends and stock price
gains. Dividends are a part of the earnings of
companies that they decide to give to their
stockholders.
MUTUAL FUND SHARES- Upon investing, you
become one of its owners and you obtain rights
and privileges such as getting invited to the annual
shareholders’ meeting, being entitled to vote, etc.
Most importantly, a number of shares that
correspond to the amount you’ve invested is going
to be issued to you
NET ASSET VALUE PER SHARE- is the total worth of
the entire mutual fund company divided by the
number of shares it has distributed to all investors.
It is determined by getting the sum of all its assets
minus all debts and expenses, and then divided by
the number of share.
PORTFOLIO- The combined holdings of the mutual
fund.
NET ASSET VALUE- is important to understand the
performance of a particular scheme of a mutual
fund.
ASSETS UNDER MANAGEMENT- The total value of
the assets a fund buys
AUTOMATIC REINVESTMENT- A mutual fund gives
return in two ways – dividends and an increase in
value. The latter can be utilized only when you sell
the mutual fund unit.
CAPITAL GAINS DISTRIBUTIONS- Apart from
dividends, mutual funds also distribute the profits
it makes from selling some of the underlying assets
at higher values.
COMPOUNDING- When you invest in a financial
asset, you earn on the amount invested. Over time,
you can either reinvest this amount or put it in a
bank account. Either way, you earn some amount
on your existing profits – either through
investment returns or from bank interest.
DEPRECIATION- This is the decline in your
investment’s value in the mutual fund
DIVERSIFICATION- is one of the key benefits as well
as characteristic of a mutual fund. It is the practice
of investing in different types of securities or asset
classes. This is done to reduce risk.
AVERAGE PORTFOLIO- The average maturity of all
the securities in a bond or money market fund’s
portfolio.
RUPEE-COST AVERAGING- Every day, values of
financial assets change. So, when you buy at two
different times, your purchase/market price will
differ. For example, today you buy 10 units at Rs
100 each.
PORTFOLIO- This is the collection of assets owned
by the mutual fund or even you as an individual. It
includes all the financial instruments invested in
like stocks, bonds, and other securities.
EX-DIVIDEND DATE- Just like companies, mutual
fund houses to announce the amount of dividend
to be distributed a few days before the actual
distribution.
LOAD- This is the amount a mutual fund charges
investors for various reasons. There are different
kinds of loads – management fees, entry or front-
end loads, exit loads
MANAGEMENT FEES- The amount paid to your
fund manager for his expertise and portfolio
management skills
LOAD FUNDS- Mutual funds that charge investors
ENTRY/FRONT-END LOAD- is the amount a mutual
fund charges when units are purchased by
investors.
EXIT LOAD- is the amount a mutual fund charges
you for selling or redeeming your shares.
NO-LOAD FUNDS- There are funds which do not
charge any fees or loads.
TOTAL RETURN- This is the total amount of profits
an investor makes keeping in mind the dividends,
capital gains from selling units, distribution of fund
income as well as returns earned on reinvestments.
FAMILY OF FUNDS- Many fund houses group a set
of mutual funds together based on their
investment objectives, or other factors like
management.
EXHANGE-TRADED FUND (ETF)- is an investment
vehicle much like a mutual fund, but which is
traded on stock exchanges. It generally tracks an
index, a basket of assets or a commodity.
FUNDS OF FUNDS (FF)- Mutual funds invest in
multiple types of assets like stocks and bonds. They
can also invest across mutual funds.
NEW FUND OFFERING (NFO)- Similarly, when a
mutual fund starts a new scheme and invites
investors to put in money in exchange for units
REDEEM- There are two ways to exit a mutual fund
– sell it to another investor or back to the fund
COMMERCIAL PAPER- These are again a debt-
market instrument, issued by corporations to raise
money for the short term. They are usually
unsecure as the company does not pledge any of
its assets as collateral.
CERTIFICATE OF DEPOSIT- This is a kind of debt-
market instrument issued by banks or financial
organizations. It acts as a proof of saving by the
investor and promises interest payments.
INTEREST RATE RISK- In a bond market, there are
two different interest rates prevalent. One is the
fixed rate for interest payment, and the other is
called the yield-to-maturity.
The legal structure of Indian mutual fund is unique
and differs from that in the US and the UK. In the
US, funds are set up as investment must include
the Phils. Knowledge of the basic structure of a
mutual fund helps investors in understanding their
rights as well as the obligations of the fund. The
legal structure of Indian mutual fund is unique and
differs from that in the US and the UK. In the US,
funds are set up as investment companies which
could be a corporation, partnership or unit
investment trust whereas in the UK, funds are set
up in two alternative structures—OPEN-ENDED
FUNDS are set up in the form of trusts while
CLOSED-ENDED are set up as corporate entities. In
India, all type of funds (whether open-ended or
closed-ended) are set up as unit trusts. The
structure is defined by Sebi (Mutual Fund)
Regulations, 1996. The key constituents of Indian
mutual funds are:
SPONSOR- The sponsor is a kind of promoter of a
company as he gets the mutual fund registered
with Sebi. The sponsor is defined under Sebi
regulations as a person who, acting alone or in
combination with .. another body corporate,
establishes a mutual fund. The sponsor forms a
trust, appoints the board of trustees, and has the
right to appoint the asset management company
(AMC) or fund manager.
TRUSTEES- The mutual fund can be managed by a
board of trustees or a trust company. The board of
trustees is governed by the Indian Trust Act
whereas a trust company is governed by the
Companies Act, 1956. The trustees act as a
protector of unit holder .. interests. They do not
directly manage the portfolio of securities and
appoint an AMC (with approval of Sebi) for fund
management. If an AMC wishes to float additional
or different schemes, it will need to be approved by
the trustees.
Trustees play a critical role in ensuring full
compliance with Sebi’s requirements.
ASSET MANAGEMENT COMPANY- The AMC is
appointed by trustees for managing fund schemes
and corpus. An AMC functions under the
supervision of its own board of directors and also
under the directions of trustees and Sebi. The
market regulator has mandated the limit of
independent directors to ensure independence in
AMC workings.
The major obligations of AMC include: ensuring
investments in accordance with the trust deed,
providing information to unit holders on matters
that substantially affect their interests, adhering to
risk management guidelines as given by the
Association of Mutual Funds in India and Sebi,
timely disclosures to unit holders on sale and
repurchase, NAV, portfolio details, etc.
CUSTODIAN AND DEPOSITORIES- The fund
management includes buying and . selling of
securities in large volumes.
Therefore, keeping a track of such transactions is a
specialist function. The custodian is appointed by
trustees for safekeeping of physical securities while
dematerialised securities holdings are held in a
depository through a depository participant. The
custodian and depositories work under the
instructions of the AMC, although under the overall
direction of trustees.
REGISTRAR AND TRANSFER AGENTS- These are
responsible for issuing and redeeming units of the
mutual fund as well as providing other related
services, such as preparation of transfer documents
and updating investor records. A fund can carry out
these activities in-house or can outsource them. If
it is done internally, the fund may charge the
scheme for the service at a competitive market
rate.
RTAs are more like the operational arm of Mutual
Funds.
Services includes:
1.)Processing investors’ application
2.)Keeping a record of investors’ details
3.)Sending out account statements to the investors
4.)Sending out periodic reports
5.)Processing the payouts of the dividends
6.)Updating the investor details i.e. adding new
members and removing those who have withdrawn
from the fund
THE FUND SPONSOR- The Fund Sponsor is the first
layer in the three-tier structure of Mutual Funds in
India. SEBI regulations say that a fund sponsor is
any person or any entity that can set up a Mutual
Fund to earn money by fund management.
There are eligibility criteria given by SEBI for the
fund sponsor:
The sponsor must have experience in financial
services for a minimum of five years with a positive
Net worth for all the previous five years.

TRUST AND TRUSTEES- Trust and trustees form the

second layer of the structure of Mutual Funds in
India. A trust is created by the fund sponsor in
favor of the trustees, through a document called a
trust deed. The trust is managed by the trustees
and they are answerable to investors.

CUSTODIAN- A custodian is responsible for the

safekeeping of the securities of the Mutual Fund.
They manage the investment account of the
Mutual Fund, ensure the delivery and transfer of
the securities.

AUDITOR- Auditors audit and scrutinize record

books of accounts and annual reports of various
schemes. Each AMC hires an independent auditor
to analyze the books so as to keep their
transparency and integrity intact.

BROKERS- AMC uses the services of brokers to buy

and sell securities on the stock market. The AMCs
uses research reports and recommendations from
many brokers to plan their market moves.