Group 1 Section 2 Abhijit Tibrewal Ajay R Akanksha Behl Akash Mohan Akshat Agrawal 2011PGP054 2011PGP055 2011PGP056 2011PGP057

2011PGP058

MEANING OF MUTUAL FUND

A mutual fund is a financial intermediary which acts as a tool of investment. Type of a collective investment scheme and is regulated by SEBI. Collects funds from different investors to a common pool of investible funds. Invests these funds in a wide variety of investment opportunities.

In India, the first mutual fund UTI in 1964. After 1990, several Commercial Banks, All India Financial Institutions, Investment Companies, Insurance Companies and Private Sector Companies have started several mutual funds

FEATURES OF A MUTUAL FUND

It Is A Pool Of Financial Resources

Mutual Funds Are Professionally Managed

Mutual Fund Is An Indirect Investing By The People

Investment in mutual fund is not borrowing-lending relationship

Mutual fund is a representative of investors

MECHANISM OF MUTUAL FUND OPERATIONS

Goals Of Mutual Fund Investors

diversified portfolio

services of professionals and experts

investment analysis and selection

economies of scale

liquidity

Benefits of Mutual Funds

different types of schemes

low risk coupled with stability of income

regulated, supervised and controlled

Variety of service

risk-hedging mechanism

CLASSIFICATION OF MUTUAL FUND SCHEMES

BASIS
Life Span 1. 2. 1. 2. 1. 2. 3. 1. 2. 1. 1. 2. 1. 2. 3. 4. 5.

MUTUAL FUND SCHEME

Close-ended Schemes Open-ended Schemes Income Schemes Growth Schemes Equity Schemes Debt Schemes Balanced Schemes Capital Market Schemes Money Market Schemes Different Sectoral Schemes Load Schemes No Load Schemes Index Schemes Offshore Schemes Gilt Securities Schemes Exchange Traded Funds (ETF) Fund of Funds

Income Mode

Portfolio

Maturity of Securities

Sectors Load

Special Schemes

TYPES OF INVESTMENT PLANS

SYSTEMATIC INVESTMENT PLAN (SIP)
SYSTEMATIC WITHDRAWAL PLAN (SWP)

A systematic investment plan (SIP) is one in which an investor invests in a mutual fund scheme, a pre-specified amount, say Rs. 1,000, at pre-specified intervals, say one month

Fixed withdrawal, where a fixed specified amount is withdrawn on monthly or quarterly basis Appreciation withdrawal, where 90% (or some other) of the appreciated amount can be withdrawn on monthly/quarterly basis

The concept of SIP is based on the principle of cost-averaging Benefits Power of compounding by investing now Cost averaging Convenience Disciplined investing

NET ASSETS VALUE (NAV) & CORPUS OF A MUTUAL FUND

Funds collected under a particular scheme are known as corpus or Asset under Management The corpus is invested in different securities NAV refers to the ownership interest per unit of the mutual fund, i.e. NAV refers to the amount which a unit holder would receive per unit if the scheme is closed.

NAV of any scheme tells us how much each unit is worth. It may be taken as the simplest measure of performance of a mutual fund.

COST AND LOADS IN MUTUAL FUND INVESTMENTS

OPERATING EXPENSES These are the costs incurred by the mutual funds in respect of management of portfolio of assets on behalf of the investors. The operating expenses include the administrative expenses and the advisory fees payable to the trustees, etc.

LOADS In case of open-ended schemes, load refers to the difference between the NAV and the Purchase/Sale Price of Units. An investor may be required to bear the following two types of load: Entry or Front-end Load Exit or Back-end Load

RETURN FROM A MUTUAL FUND

The return depends upon the objective of the scheme. The return may consist of the following: Periodic dividends in cash Distribution of capital gains Increase (change) in NAV over the period

STRUCTURE OF A MUTUAL FUND

Sponsoring Company

Board of Trustees

Mutual Funds

Custodian Bankers Asset Management Company Registrar & Transfer Agent

MUTUAL FUNDS IN INDIAN CAPITAL MARKET

PHASE 1 First mutual fund was established in July 1964 in the name of Unit Trust of India post which several other schemes were started. Till 1987, UTI remained the synonym for mutual fund in India. It was the sole player.

PHASE 2

In 1987, the government allowed the public sector banks to establish mutual funds. SBI became the first non-UTI institution to establish the SBI Mutual Fund in 1987. Other mutual funds to follow suit were Canbank Mutual Fund, PNB Mutual Fund, etc. This position continued till 1992.

PHASE 3

In 1993 the government allowed private sector mutual funds also. The fisrst one was Kothari Pioneer noe merged with Franklin Templeton. In 1994 foreign mutual funds could also operate . In 1992 , SEBI was established and it issued guidelines for the working and supervision of mutual funds.

PHASE 4

In 1996, new Regulations were framed by SEBI post which a number of foreign as well as indian mutual funds have been established. At the end of March 2011, there were 49 mutual funds. Each of these has a number of schemes operating with different features and characteristics. There are more than 500 schemes at present.

REGULATION OF MUTUAL FUNDS IN INDIA

The sponsor, who wants to establish a mutual fund, should have a sound track record and a general reputation of fairness and integrity A mutual fund is constituted in form of trust. The trust shall incorporate an Asset Management Company (AMC). Two-thirds of the trustees shall be independent persons and not be associated with the sponsor. The trustees shall ensure that activities of the AMC are in accordance with the Regulations, 1996. The trust shall periodically review the investors complaints received and shall be redressed by the AMC.

THE UTI FIASCO

UTI was established in 1963 as a statutory and first mutual fund in India. It had a monopoly till 1987 UTI could raise total investible funds of more than Rs. 20,000 crores under the US-64 scheme The trouble started in 1997-98 in this scheme, when there was a heavy outflow of funds from this scheme Dividend rate declined from 26% (1994-95) to 13.75% in 1999-00 The scheme was ultimately closed and all the units of US-64 were converted into 6.75% Tax free US-64 Bonds There were two possible reasons for the occurrence of the UTI fiasco. y The repurchase price of units was not in line with the NAV. y The dividend policy adopted by the UTI made the investors to believe that US-64 was an assured return scheme.

MUTUAL FUNDS INVESTORS PROTECTION IN INDIA

Each mutual fund must be registered with SEBI. The sponsor must have a sound track record and experience in financial services of at least 5 years. Number of terms and conditions has been provided in respect of AMC. The Directors of the AMC should have adequate professional experience in finance and financial services. The custodian of the mutual fund should also be approved and registered with SEBI. No mutual fund scheme can be launched unless approved with the trustees. Minimum and maximum amount to be raised under the scheme should be notified.