Concept and role of Mutual Fund A Mutual fund is a pool of money, collected from investors by an Asset Management Company,

to achieve some common objectives of the investor. 2. The money thus collected is invested in Capital market instruments. 3. The income earned / capital appreciations are shared by its unit holder in proportion of the number of units hold by them.
1.

Advantages of Mutual Funds 1. Increases the purchasing power of the investor. 2. Well diversified portfolio. 3. Allow participation in securities market with small investments. 4. Reduction of risk. 5. Professional management of money at low cost 6. Liquidity 7 Convenience & flexibility Evolution/Stages of Mutual Funds in India

Phase 1 Phase 2

1964-87 1987-93

Growth of Unit Trust of India Entry of Public sector funds State Bank of India established the first non UTI Mutual Fund Emergency of Private Fund

Phase 3 Phase 4 Phase 5 Phase 6

1993-96 1996-99

SEBI Mutual Fund regulation 1996 was adopted. 1999-2004 Emergence of a large & uniform Industry 68000-150000cr 2004 till Consolidation & Growth.

Legal structure of Mutual Funds

TRUSTEE

AMC

CUSTODI AN/DP

R&T AGENT

BANKAR

DISTRIBU TERS

Types of Mutual Funds (Structure)

Open Ended Funds: Open ended funds are ones that sell & repurchase units at all times. The AUM keeps fluctuating depends investors buying or selling units. An AMC might stop selling units if the fund size becomes too big to manage. However repurchase of units is done all times. Close ended funds It makes one time sell of units. After the offer closes CEFs do not let the investors buy directly from the fund. To provide liquidity to the investors these funds are traded in the stock market. Sometimes the fund houses also offers buy back at regular intervals. Tax exempt & nontax exempt funds ELSS:Some mutual funds offer tax benefits under section 80 C.Investor are not able to withdraw money for 3 years. They are open ended funds. The three year lock in is because of tax benefit received by the investor. By nature of risk profile Equity fund s have a greater risk of capital loss, while they look for greater returns Debt funds seek to protect the capital while capital appreciation takes place at a slower rate. Liquid funds seek to follow the policy safety first & invest in short term securities. DEBT Funds(income funds) Invest in debt instruments issued by the government, private companies, banks, financial instruments & other entities like infrastructure companies, utilities etc. Target low risk- stable income Invest in long term securities

Equity Funds Offer great risk than debt funds, as well as offer higher potential for growth. Subject to equity price fluctuation in the markets. Price movements are caused by many factors like political, social as well as economic.

Aggressive Growth funds Growth Funds Specialty Funds Sector Funds Foreign Securities Fund Mid cap or Small cap Fund Diversified Equity Funds Equity linked saving scheme Equity index funds Value index funds

Money Market & liquid funds. Considered to the safest of all investments. Invest in debt securities of short term(less than 1 year) Major strength liquidity & safety of principal due to short term.

Gilt Funds Medium to long term maturity Little risk of default as issued by government

Hybrid Funds

Funds seeking to balance equity debt securities are termed as hybrid funds.

Commodity Funds

Specialize in investing in different commodities directly or through shares of commodity companies or through commodity futures contract. May invest in a single commodity or commodity group like edible oils Diversified commodity will spread their assets over many commodities. Precious metal funds are an ideal example.

Real estate funds.

Invest in real estate or in companies dealing with real estate.

Funds of Funds

Invest in other Mutual Fund schemes. Funds of funds are not allowed to invest in other fund of fund.

Investment Plans/Options and Services

o The term investment plan generally refers to the portfolio flexibility that the fund provides to investors offering different ways to invest or reinvest.

Equity/Debt investment
Growth Option Dividend option Dividends payout

Automatic Reinvestment Plans(ARP)

To reinvest the amount of dividends or other distributions made by the fund in the same fund.

Systematic investment Plans(SIP)

Invest a sum periodically, through direct debit/PDCs to the investors bank account or through ECS.

Systematic Withdrawal plan(SWP)

Allows the investors to make systematic withdrawals from his fund investment account on a periodic basis

Systematic Transfer Plans(STP)

Allow the investor to transfer on periodic basis a specified amount from one scheme to another within the same fund family.

KIM
Key information Memorandum is the abridged version of the offer document & in distributed along with the application form. Investment objective Benchmark index & dividend policy Name of the fund manager & trustee company Asset allocation pattern of the scheme Performance of the schemes in terms of compounded annualized returns over 135 year period. Sources of obtaining daily NAV Investor grievance contact

 Mechanism to provide unit holders with information such as account statements, annual financial results& yearly portfolio disclosures.

NAV (Net Asset Value)

Net Asset Value, or NAV, is the sum total of the market value of all the shares held in the portfolio including cash, less the liabilities, divided by the total number of units outstanding. NAV = Total asset value-Liabilities/Total number of Units outstanding

Absolute Return Method.

This method is suitable for computing returns between two dates. For a fund that has not completed a year absolute return method is used. (NAV at the end of period-NAV at the beginning of the period)*100/NAV at the beginning of the period

CAGR

Compounded Annual Growth Rate

A=P (1+r)n
A =Amount at maturity

P= Principal investment r = Rate of interest n= No of year Total Return with Dividend Reinvestment method (NAV at end*Units at the end)-(NAV at beginning*Units at beginning)*100/NAV at beginning*Units at beginning Units at end = Units at beginning +Additional Units purchased