Overview of Mutual

funds and
Insurance
 Mutual Funds

 Mutual fund is a mechanism for pooling

the the savings of a number of investors
who share a common goal by issuing units
to the investors and investing funds in a
diversified, professionally managed
portfolio in accordance with objectives of
the scheme as disclosed in offer
document.
 How a mutual fund works?
 A Mutual Fund pools the savings of a number of investors who
share a common financial goal.
 The mutual funds normally come out with a number of
schemes with different investment objectives, which are
launched from time to time.
 Mutual fund issues units to the investors in accordance with
quantum of money invested by them.
 Investors of mutual funds are known as unit holders.
 The money thus collected is then invested in diversified
portfolio of instruments such as shares, debentures and other
securities which are spread across a wide cross-section of
industries and sectors and thus the risk is reduced.
 The portfolio is professionally managed at a relatively low
cost.
 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.
 FREQUENTLY USED TERMS
 Net Asset Value (NAV)
Net Asset Value is the market value of the assets of the scheme minus its
liabilities. The per unit NAV is the net asset value of the scheme divided by
the number of units outstanding on the Valuation Date.
 Sale Price
Is the price you pay when you invest in a scheme. Also called Offer Price. It
may include a sales load. 
 Repurchase Price /Redemption Price
Is the price at which open-ended schemes repurchase their units and
close-ended schemes redeem their units on maturity. Is the price at which
a close-ended scheme repurchases its units and it may include a back-end
load. This is also called Bid Price. Such prices are NAV related. 
 Sales Load or ‘Front-end’ load
 Is a sales charge expressed as a percentage of the NAV collected by a
scheme when it sells the units by deducting from the amount invested.
Schemes that do not charge a load are called ‘No Load’ schemes. 
 Repurchase or ‘Back-end’Load
Is a charge collected by a scheme when it buys back the units from the
unitholders. 
Constitution & Management Of MFs
 SEBI requires a four system to organize MFs
 Sponsor,
 Trustee,
 Assetmanagement company and
 Custodian.

Sponsor

Trustee Mutua AMC

l
Fund

Custodian
Sponsor
 Sponsor is the body corporate who acting alone or in
combination with another body corporate establishes a
MF.
Trustee
 Holds the property of the mutual fund in trust for the
benefit of the unit holders.
Asset Management Company (AMC)
• It is a company formed and registered under the Companies
Act, 1956 and appointed by the Trustee as the Investment
Manager of the MF.
• Has to be approved by the SEBI to act as an AMC of the MF.
Custodians
 The custodians are responsible for the safe custody of the
securities of the fund and for ensuring their ready availability
and may also collects income/dividends on the securities.
 Types of scheme
Schemes according to Maturity Period:
 Open-ended Fund/ Scheme
 Close-ended Fund/ Scheme
 Interval fund
Schemes according to Investment Objective
 Growth / Equity Oriented Scheme
 Income / Debt Oriented Scheme
 Balanced Fund (Hybrid Funds)
 Money market mutual Funds
Schemes according to existence of load
 Load Fund
 No-load Fund
 Other Types of schemes
 Special Schemes – children’s gift growth
fund,housing unit scheme,etc
 Sector based funds
 Gold & Silver
 Real estate
 Specific industry like Oil, Gas, electronic, InfoTech,
FMCG, Pharmaceuticals etc.
 Index Schemes
 Taxation Funds Eg. Tax saving Magnum of SBI
capital market Limited
 Gilt Fund
 Capital protection schemes
 Open-ended Mutual Fund
 An open-ended one continues to sell its units to
investors after the initial sale that starts the fund
and redeems them at NAV
 Open-ended mutual funds cannot be sold or
purchased in the secondary market.
 Have no time duration
 Close-ended mutual funds
 Closed-ended mutual funds have a fixed number of
units, and a fixed tenure (3, 5, 10, or 15 years), after
which their units are redeemed or they are made open-
ended.
 Close-ended mutual funds usually sell no additional
shares after the NFO and therefore, their
capitalizations are fixed
 Are listed on the stock exchanges and thus, can be
traded in the secondary market.
 The market price of a closed-ended fund is a direct
function of its NAV.
 Closed-ended funds may sometimes repurchase their
units at an NAV-linked price after a certain lock-in
period.
 Benefits of Mutual Funds
 Professional management
 Affordability (small investments);
 Diversified portfolio
 Liquidity
 Tax breaks
 Low operating costs
 Low risk
 Higher return
 Transparency in operations
 Choice of schemes
 Flexibility
 Support capital and money markets and promote industrial
development
 NAV of Mutual Funds & Pricing of units
 Net Asset Value is the market value of the assets of the scheme
minus its liabilities.
 The NAV per unit is the net asset value of a scheme divided by the
total number of units outstanding on any particular date/Valuation
Date. 
 NAV is the value of a single unit in the fund.
 It denotes the performance of a particular scheme of a MF.
 NAV varies on day-to-day basis as market value of securities changes
every day so it is calculated daily.
Pricing of units
 The price per unit of a mutual fund is linked to the Net Asset Value
(NAV) of the fund.
 Open-ended mutual funds new shares are purchased, and existing shares are
redeemed at the most recently calculated NAV.
 Closed-ended funds:The market price of a closed-ended fund is a direct
function of its NAV. However, units of a closed-ended fund always usually trade
at a discount to their NAV.
 MUTUAL FUNDS IN INDIA
Origin & Growth
The idea of MFs in India was given by Shri T. Krishnamachari
(Finance Minister at that time).
He introduced UTI Bill in Parliament in 1964 as an opportunity
for the middle and low-income groups to acquire properly in
the form of shares.
The history of mutual funds in India can be broadly divided into
four distinct phases

 First Phase – 1964-87 – Establishment of UTI

 Second Phase – 1987-1993 - Entry of Public Sector Funds.
SEBI notified regulations for the mutual funds in 1993.
 Third Phase – 1993-2003 - Entry of Private Sector Funds.
The SEBI (MF) regulations were fully revised in 1996
 Fourth Phase – Since February 2003 – Bifurcation of UTI
GROWTH IN ASSETS UNDER MANAGEMENT
 State of MFs in India
 Since October 2008 :The industry which was growing
on a year on year basis every month since June
reversed this trend and started recording declines
since October 2008 and at the end of the quarter (Oct-
Dec 2008), the AUM had declined by 23% over the
previous year. This was the chiefly due to the net
outflow of funds(huge redemptions) and partly due to
the market meltdown.
 At present there are 37 funds. At the end of January
2009 total schemes were 581 and AUM were Rs
478258 crores.and at end of February 2009 total
schemes were 584 and total AUM were Rs 508670
crores.
MUTUAL FUNDS IN INDIA

 A mutual fund is required to be registered with

Securities and Exchange Board of India (SEBI)
which regulates securities markets before it can
collect funds from the public.
 Mutual funds in India are governed by the SEBI
(Mutual Fund) Regulations, 1996 and SEBI
Mutual Fund Guidelines (2001-2002)