An old Axlom

I| is no| wisc |o pu| all cs

in|o onc baskc|"
was probab|y |n the m|nds of
those who deve|oped the |dea of mutua|
funds
!7080390/-
Arunoduy Singh
RoII no,- 13
MA- 3
rd
Sem
Z010-1Z
MUTUAL FUND
A MuLual lund ls a LrusL LhaL pools Lhe savlngs of a number of
lnvesLors who share a common flnanclal goal
1he money Lhus collecLed ls Lhen lnvesLed ln caplLal markeL
lnsLrumenLs such as shares debenLures and oLher securlLles
1he lncome earned Lhrough Lhese lnvesLmenLs and Lhe caplLal
appreclaLlon reallzed are shared by lLs unlL holders ln
proporLlon Lo Lhe number of unlLs owned by Lhem
MuLual lund ls Lhe mosL sulLable lnvesLmenL
for Lhe common man as lL offers an opporLunlLy Lo
lnvesL ln a dlverslfled professlonally managed baskeL
of securlLles aL a relaLlvely low cosL
Concept
(mutua| fund) kegu|at|on1996
tructure of MI |n nd|a
50*niz*tion* $t58ct85e of MF
\[Z_[^
O Piomoiei of ile company,
O Coniiibuie min o% of nei woiil of AMC,
O Possess sound financial iecoid ovei five yeais
peiiod,
O Esiablisles ile Fund,
O Geis ii iegisieied wiil ile SEBI,
O Foims a iiusi, 8 appoinis Boaid of iiusiee.
^a_`WW
O Ensuies ilai MF complies wiil all ile iegulaiions.
O Tiusiees aie caieialei of unii loldeis money.
1wo Lhlrd of Lhe LrusLees shall be lndependenL
persons (noL assoclaLed wlLh Lhe sponsor)
1rusLees ensure LhaL Lhe sysLem processes
personnel are ln place
8esolves unlL holders C8lLvAnCLS
AppolnL AMC CusLodlan ensure LhaL all acLlvlLles
are accordance wlLh Lhe SL8l regulaLlon
ustod|an
olds Lhe fund's securlLles ln safekeeplng
SeLLles securlLles LransacLlon for Lhe fund
CollecLs lnLeresL dlvldends pald on securlLles
8ecords lnformaLlon on corporaLe acLlons
amp|es of custod|an
lC Cl1? 8Ank
A8n AM8C ll1 CC8C8A1L SL8vlCLS
S8l lnlA S1AnA8 CA818L
SClL Lu1SCL 8Ank
sset Management ompany
lloaLs schemes manages accordlng Lo SL8l
Can noL underLake any oLher buslness acLlvlLy oLher
Lhan porLfollo mgmL servlces
73 of unlL holders can [olnLly LermlnaLe
appolnLmenL of AMC
AL leasL 30 of lndependenL dlrecLors
Chalrman of AMC can noL be a LrusLee of any Ml
amp|es of M
u1l lClCl rudenLlal 8ellance
S8l Canbank lnC vysya
SLancharL 1aurus S8C
|str|butor ] gents
Sell unlLs on Lhe behalf of Lhe fund
lL can be bank n8lCs lndlvlduals
anker
laclllLaLes flnanclal LransacLlons
rovldes remlLLance faclllLles
keg|strar 1ransfer gent
MalnLalns records of unlL holders' accounLs
LransacLlons
lsburses recelves funds from unlL holder
LransacLlons
repares dlsLrlbuLes a/c seLLlemenLs
1ax lnformaLlon handles unlL holder communlcaLlon

rovldes unlL holder LransacLlon servlces

amp|es of k 1 gents
CAMS kA8v?
MCS LLd aLamaLlcs
Mn asLoor Co ll1 CorporaLe Servlces
CompuLeronlcs 1CS
lClCl lnfoLec u1l lSL
lnvesLor ob[ecLlve
CpLlmal
orLfollo
orLfollo
CpLlmlzaLlon
LxpecLed 8eLurn
volaLlllLy
CorrelaLlon LsLlmaLes
ConsLralnLs on
orLfollo cholce
F8nd M*n*0ement l5ocess
lo5tfoio M*n*0ement l5ocess
Lach caLegory ls classlfled lnLo more subcaLegorles
Iund schemes ortfo||o ob[ect|ves
CrowLh lncome lgh 8lsk lgh 8eLurn
8alanced ModeraLe 8lsk 8eLurn
Llquld Money MarkeL llxed 8eLurn
CllL Zero 8lsk
LLSS 1ax Savlng
lund of funds AddlLlonal dlverslflcaLlon
C*ssific*tion of MF scbemes
y tructure
CpenLnded anyLlme enLer/exlL
CloseLnded Schemes llsLed on exchange redempLlon afLer perlod of
scheme ls over
lnLerval funds comblnaLlon of boLh open and closed ended funds
y nvestment Cb[ect|ve
LqulLy (CrowLh) only ln SLocks Long 1erm (3 years or more)
ebL (lncome) only ln llxed lncome SecurlLles (310 monLhs)
Llquld/Money MarkeL (lncludlng gllL) ShorLLerm Money MarkeL
(CovL)
8alanced/ybrld SLocks + llxed lncome SecurlLles (13 years)
Cther chemes
1ax Savlng Schemes
Speclal Schemes (L1ls forelgn funds)
tbe5 c*ssific*tion of MF scbemes
|vers|f|ed equ|ty funds dlverse mlx of securlLles
ector funds lnvesL ln a speclflc secLor
1hemat|c funds lnvesL ln llne wlLh an lnvesLmenL
Lheme (relaLed secLors)
qu|ty L|nked av|ngs cheme (L) 1axsavlngs
lockln of 3 years
rb|trage funds conLrary poslLlons ln dlfferenL
markeL securlLles
#pes of Eq8it F8nds
change traded funds are openended lndex
funds LhaL are Lraded ln Lhe sLock exchange
Allow lnvesLors Lo buy sell unlLs from muLual funds
ln Lhe sLock markeL
Llke equlLy Lhey are Lraded on sLock exchange on real
Llme basls
1here have been a couple of L1ls from rudenLlal
lClCl AMC and u1l AMC
&b*t *5e E#Fs
!isk -!et85n of diffe5ent scbemes
rofesslonal ManagemenL
lverslflcaLlon
oLenLlal lgher 8eLurn vs oLher Avenues
Low CosLs
LlquldlLy
1ransparency
llexlblllLy
Cholce of schemes
1ax beneflLs
Well regulaLed
ADVANTAGES OF MUTUAL FUNDS
ManagemenL fees
LxlL CosLs
oLenLlal poor performance
CompllcaLed Lax reporLlng lssues
oLenLlal markeL rlsk wlLh all lnvesLmenLs
Aqqtesslve ot ooetblcol soles petsoooel / ptoctlces
90 of tbe teosoo wby lovestots stoy owoy ftom Motool
looJs
LMTATONS OF MUTUAL FUNDS
(MI) kegu|at|on 1996 as regu|ator of MI
rov|s|ons of
M1
Lega| character of MI
Ml can be seL up only as 18uS1
unlL holder can'L challenge LrusLees
tructure of MI
ArmslengLh relaLlonshlp b/w varlous consLlLuenLs
lndependenL cusLodlan
keg|strat|on of MI
MusL fulflll ellglblllLy crlLerla
AMC have mln neL worLh of 10 cr
Cperat|on of MIs
lsclosure of lnformaLlon
AdverLlsemenLs
ally prlclng
8lsk managemenL sysLem
!e08*to5 Aspect
Ml has Lo publlsh a compleLe sLaLemenL of Lhe scheme
porLfollo and Lhe unaudlLed flnanclal resulLs wlLhln 1
monLh from Lhe close of each half year
Ad musL appear ln a naLlonal Lngllsh dally newspaper
and one reglonal newspaper where Lhe head offlce ls
nAv has Lo be publlshed dally ln aL leasL 2 newspapers
SLandard Ad norms seL by SL8l Lo be followed
MusL manage all Lhe schemes ln accordance wlLh Lhe
fundamenLal lnvesLmenL ob[ecLlves and lnvesLmenL
pollcles sLaLed ln C
tbe5 5e08*tions
unlL holders have Lhe rlghL Lo lnspecL key documenLs such as
LrusL deed cusLodlal servlces agreemenL MoA and AoA of Lhe
AMC
73 of Lhe unlLholders can pass a resoluLlon Lo wlndup a
scheme
lf Lhe lnvesLor feels LhaL Lhe LrusLees have noL fulfllled Lhelr
obllgaLlons Lhen he can flle a sulL agalnsL Lhe LrusLees for breach
of LrusL
Anyone who ls aggrleved by a rullng of SL8l can flle an appeal
wlLh Lhe SecurlLles AppellaLe 1rlbunal
n\esto5 !i0bts
ystemat|c nvestment |an ()
lnvesL a flxed sum every monLh (6 monLhs Lo 10 years)
lewer unlLs when Lhe share prlces are hlgh and more unlLs
when Lhe share prlces are low Average cosL prlce Lends Lo fall
below Lhe average nAv
opee cost Avetoqloq
ystemat|c 1ransfer |an (1)
lnvesL ln debL orlenLed fund and glve lnsLrucLlons Lo Lransfer a
flxed sum aL a flxed lnLerval Lo an equlLy scheme of Lhe same
muLual fund
ystemat|c W|thdrawa| |an (W)
8epurchase consLanLly over a perlod
n\estment $t5*te0
ow * $#l wo5ks?
|v|dend payout
lund declares dlvldends from Llme Lo Llme
When dlvldend ls pald nAv falls
|v|dend re|nvestment
lvldend ls noL recelved ln Lhe bank accounL buL ls
agaln lnvesLed ln Lhe scheme
rowth
no dlvldend ls declared
nAv capLures full porLfollo galns
ptions witbin * scbeme
C*n * M8t8* F8nd 0o b8st?
Lven lf sponsors wlsh Lo move ouL of Lhe buslness Lhey
need Lo brlng ln some oLher sponsor accepLable Lo SL8l
before Lhey can exlL
CusLodlan ls lndependenL of Lhe sponsor and Lhe AMC
1hls ensures sLrucLural proLecLlon of Lhe scheme asseLs
ln Lhe evenL of change ln Lhe sponsorshlp LhaL an
lnvesLor ls noL comforLable wlLh Lhe opLlon of exlLlng
from Lhe scheme wlLh Lhe full nAv ls avallable for a 30
day perlod
@bese sttoctotol tepoltemeots eosote foll ptotectloo ftom
most cootloqeocles
ffe5 Doc8ment (D|
-ew Iund Cffer (-IC)
unlLs ln a muLual fund scheme are offered Lo lnvesLors for Lhe flrsL
Llme Lhrough a nlC
1hree daLes are relevanL for Lhe nlC of an openended scheme
-IC Cpen ate 1hls ls Lhe daLe from whlch lnvesLors can lnvesL
ln Lhe nlC
-IC |ose ate 1hls ls Lhe daLe upLo whlch lnvesLors can lnvesL
ln Lhe nlC
cheme keCpen|ng ate 1hls ls Lhe daLe from whlch Lhe
lnvesLors can offer Lhelr unlLs for repurchase Lo Lhe scheme
#be !oe of ffe5 Doc8ment
lnvesLors geL Lo know Lhe deLalls of any nlC Lhrough
Lhe Cffer ocumenL
Slnce Lhe dlsclosures ln Lhe Cffer ocumenL are as
prescrlbed by SL8l lL ls a legal documenL LhaL helps
lnvesLors Lake a balanced vlew on Lhe lnvesLmenL
1he Cffer ocumenL ls one of Lhe mosL lmporLanL
sources of lnformaLlon on Lhe scheme Lo help Lhe
prospecLlve lnvesLors evaluaLe Lhe merlLs and
demerlLs of lnvesLlng ln lL
Mutua| Iund Cffer ocuments have two parts
cbeme lofotmotloo uocomeot (Sl) whlch has deLalls of Lhe
scheme llke nlC daLes name of Ml Lype of fund unlLs fees
rlghLs of unlLholders penalLles eLc
totemeot of AJJltloool lofotmotloo (SAl) whlch has sLaLuLory
lnformaLlon abouL Lhe muLual fund LhaL ls offerlng Lhe
scheme llke lnformaLlon abouL sponsors responslblllLles
condensed flnanclal lnfo Lax legal lnfo dlvldend pollcy
loads eLc
ey lofotmotloo MemotooJom (lM) ls esseotlolly o sommoty
of tbe lu ooJ Al lt ls mote wlJely ooJ eoslly JlsttlboteJ lo
tbe motket
FEE$
SL8l has sLlpulaLed Lhe followlng annual llmlLs on recurrlng
expenses (lncludlng managemenL fees) for schemes oLher
Lhan lndex schemes
vg week|y -ew asset
(ks rore)
Ma penses for
qu|ty cheme
Ma penses for
ebt cheme
llrsL 100 23 223
nexL 300 223 2
nexL 300 2 173
Above 700 173 13
The management fees cannot exceed :
1.25% on the first Rs 100 crore of net assets of a scheme
1.00% on the baIance net assets
#AXA#
MU1UL IU- hort 1erm ap|ta|
a|n 1a
(ho|d|ng per|od
12 months)
Long 1erm ap|ta|
a|n 1a
(ho|d|ng per|od
12months)
LqulLy 13* nll
ebL As per Lax slab 10 / 20*
dditionaI education cess of 3% on the
amount of tax
Ei0ibiit to in\est
nd|v|dua| nvestors 1hey lnvesL for Lhelr personal beneflL or Lhe beneflL of Lhelr
famlly
Lxamples
- 8esldenL lndlan adulL lndlvlduals above Lhe age of 18 1hey can lnvesL elLher
slngly or [olnLly (noL exceedlng Lhree names)
- Mlnors le persons below Lhe age of 18 Slnce Lhey are noL legally ellglble Lo
conLracL Lhey need Lo lnvesL Lhrough Lhelr arenLs/ Lawful guardlans
- lndu undlvlded lamllles (uls) ere famlly members pool Lhe famlly money
(lnherlLed) for lnvesLmenLs
non8esldenL lndlans (n8ls) / ersons of lndlan orlgln (lC) resldenL abroad
lorelgn lnvesLors can lnvesL ln equlLy schemes of Mls reglsLered wlLh SL8l afLer
compleLlng k?C process
- -on|nd|v|dua| nvestors ere Lhe lndlvlduals who slgn Lhe documenLs are
lnvesLlng on behalf of organlzaLlons / lnsLlLuLlons Lhey represenL
C !eq8i5ements fo5 M8t8* F8nd n\esto5s
revlously lL was compulsory for all lnvesLmenLs of 8s 30000 and
above Lo be compllanL wlLh Lhe regulaLory requlremenLs
prescrlbed under Lhe AotlMooey loooJetloq Act 1992 and
SL8l clrculars ln Lhls regard
1he regulaLlons have now been revlsed slnce !an 2010 1he followlng
lnvesLors have Lo be k?C compllanL lrrespecLlve of Lhe lnvesLmenL
value
- nonlndlvldual lnvesLors le companles parLnershlp flrms LrusLs ul
eLc
- non8esldenL lndlans
- lnvesLors comlng Lhrough channel dlsLrlbuLors
tbe5 b*sic 5eq8i5ements fo5 in\estin0
8roadly muLual fund lnvesLors need Lhe followlng
documenLs
- roof of ldenLlLy
- roof of Address
- An Card
- hoLograph
Me*s85es of !isk
llucLuaLlon ln reLurns ls used as a measure of rlsk
1o measure rlsk generally Lhe perlodlc reLurns are flrsL worked ouL and
Lhen Lhelr flucLuaLlon ls measured
1he flucLuaLlon ln reLurns can be assessed ln relaLlon Lo lLself or ln
relaLlon Lo some oLher lndex Accordlngly Lhe followlng rlsk measures are
commonly used
) Var|ance
Suppose Lhere were Lwo schemes wlLh monLhly reLurns as follows
Scheme 1 3 4 3 6 Average3
Scheme 2 3 10 +20 3 Average3
1he perlodlc (monLhly) reLurns flucLuaLe a loL more for Scheme 2
ln MS Lxcel uslng Lhe followlng funcLlon
var(range of cells where Lhe perlodlc reLurns are calculaLed)
varlance as a measure of rlsk ls relevanL for boLh debL and equlLy
schemes
tandard ev|at|on
Llke varlance SLandard evlaLlon Loo measures Lhe flucLuaLlon ln perlodlc
reLurns of a scheme ln relaLlon Lo lLs own average reLurn
1hls can be easlly calculaLed ln MS Lxcel uslng Lhe followlng funcLlon
sLdev(range of cells where Lhe perlodlc reLurns are calculaLed)
SLandard devlaLlon as a measure of rlsk ls relevanL for boLh debL
and equlLy schemes
1
8eLa measures Lhe flucLuaLlon ln perlodlc reLurns ln a scheme as
compared Lo flucLuaLlon ln perlodlc reLurns of a dlverslfled sLock
lndex over Lhe same perlod
1he dlverslfled sLock lndex by deflnlLlon has a 8eLa of 1
Companles or schemes whose beLa ls more Lhan 1 are seen as
more rlsky Lhan Lhe markeL 8eLa less Lhan 1 ls lndlcaLlve of a
company or scheme LhaL ls less rlsky Lhan Lhe markeL
8eLa as a measure of rlsk ls relevanL only for equlLy schemes
OMPUTNG NET ASSET VALUE
lor lnvesLors Lhe performance of Lhelr lnvesLmenL
depends on whaL happens Lo Lhe fund's per unlL
value or neL asseL value (nAv)
nAv (MarkeL value of AsseLs LlablllLles)
number of Shares CuLsLandlng
lor an nlC Lhe nAv ls usually 10
FATORS TO ONSDER FOR OOSNG A FUND
1rack record / experlence of Lhe fund house
SLablllLy of Lhe lnvesLmenL Leam / adherence Lo an
lnvesLmenL process
ConslsLenL performance of Lhe fund across markeL cycles
lsclosure and servlce levels offered by Lhe fund house
8elaLlve performance among lLs peer group (across Llme
perlods)
lnvesLmenL sLyle (wheLher lL sulLs your rlsk proflle)
Look for Lxpense 8aLlo LxlL load eLc
n\estment 08ideines
Choose ln funds conslsLenL wlLh your ob[ecLlves consLralnLs and Lax
slLuaLlon
lnvesL on'L speculaLe (SLock markeL ls noL a caslno)
8e regular
Cwn funds ln dlfferenL asseL classes
o your homework or hlre wlse experLs Lo help you
MonlLor your lnvesLmenLs aL a regular lnLerval 8emember no
lnvesLmenL ls forever
on'L panlc
n a country w|th a popu|at|on of c|ose to 120 crores we at
best have about 1 crore |nvestors |ess than 1 ! (even that
|s suspected)
4S crore mutua| funds |nvestors a myth these are fo||os
that be|ong to about 6070 |akh act|ve un|que |nvestors
nouseho|ds' |nvestments |n cap|ta| market have fa||en from
a h|gh 233 of gross f|nanc|a| sav|ngs |n 199192 to a
meager 26 |n 200809!
REALTY E
RLDDE MUTUL FUND $$ET$
Worldwide MF Assets in Rs 1,097,00,000 crs (31st Dec'10)
ndia MF Assets in Rs. 7,00,538 crs (31st Mar'11)
0.63% of the worldwide MF assets
Source: nvestment ompany nstitute; 1 USD = Rs 44.40 as at Mar 31, 2011
Websites
http://news.moneycontrol.com/mf/glossary.php
http://www.investopedia.com/university/mutualfunds/default.asp
http://www.valueresearchonline.com
http://www.mutualfundsindia.com/resourcecentre.asp
Book
Workbook for NISM- Series- V- A
!efe5ences
THANK YOU