Mutual Funds

Submitted to: Prof. Subhas Chavan Submitted by: Bhasker Verma Section-A Roll no.46

What is Mutual Fund

Mutual funds enable investors to pool their money and place it under professional investment management. The portfolio manager trades the fund's underlying securities, realizing a gain or loss, and collects the dividend or interest income. The investment proceeds are then passed along to the individual investors. (The combined holdings of stocks, bonds, or other securities and assets the fund owns are known as its portfolio.)

Concept
A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. The money thus collected is then invested in capital market instruments such as shares, debentures and other securities.

The income earned through these investments and the capital appreciation realised are shared by its unit holders in proportion to the number of units owned by them.
Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified, professionally managed basket of securities at a relatively low cost.

Mutual Fund Operation Flow Chart

CONSTITUTION OF A MUTUAL FUND

Mutual fund is a trust with a number of bodies that form a part of the mutual fund, they are as follows:
SPONSORS
The sponsor is the company which sets up the mutual fund. It means anybody corporate acting alone or in combination with another body corporate established a mutual fund after initiating and completing the formalities.

TRUSTEES
The management of the mutual fund is subject to the control of the board of trustees of the fund. They guide the operations of the fund and carry the crucial responsibility to see that AMC always act in the best interest of the investors.

 ASSET MANAGEMENT COMPANY

The mutual fund is operated by a separately established asset management company (AMC).It manages the funds of the various schemes. It is entrusted with the specific task of mobilizing funds under the scheme.
CUSTODIAN A custodian is a person carrying on the activities of the safekeeping of the securities or participating in any clearing system on behalf of the clients to effect deliveries of the securities.

REGISTRAR AND TRANSFER AGENTS

The AMC hires this agency for taking care of purchase and sale of the units of the fund, issue certificates/account statements to investors, make dividend payments, etc.

TYPES OF MUTUAL FUNDS

There are different ways of classifying mutual funds. The two most useful ways are: A) On the basis of Objective :How does the mutual fund invest your money? On this basis, mutual funds can be classified as:

a. EQUITY FUND
An EQUITY FUND invests mainly in stocks and shares of companies. EQUITY FUNDS typically aim to generate long term growth in the unit capital.

There are a variety of ways in which an equity portfolio can be created for investors. There are thus the following choices in equity funds: Simple equity funds, Industry Specific funds, Index funds, ELSS

Generally the investment strategy of an EQUITY fund is:

TYPE Equity and Equity related securities Debt, Money market securities Approx. Allocation 95% 5%

Equity-Growth

5%

Total AUM Top 5 Assets

95%

b. DEBT FUND
A DEBT FUND invests mainly in debt instruments like bonds and debentures, with high and consistent dividend payout. These funds give decent returns but the capital appreciation is not much. There are a variety of ways in which a debt portfolio can be created for investors. There are thus the following choices in debt funds: Liquid and Money market funds Gilt Funds Monthly Income Plan Floating rate funds

Generally the investment strategy of a DEBT fund is:

TYPE Debt securities Money market securities & Cash Approx.allocation 75% 25%

Liquid

GILT

6%

30%
Total AUM Top 5 Assets

Total AUM Top 5 Assets 70%

94%

c. BALANCED FUND
A BALANCED FUND invests in both equity and debt instruments. It aims to generate growth and income by periodically distributing its assets over both types of securities.

Generally the investment strategy of a BALANCED fund is:

TYPE Approx. allocation Equity and Equity related 65% securities Debt, Money market securities
13%

35%
Balanced

Total AUM Top 5 Assets

87%

B) On the basis of Flexibility How much liquid is the fund?

OR When is the entry and exit of the fund? On this basis, mutual funds can be classified as: Open ended funds Close ended funds OPEN ENDED FUNDS:
Investors can buy and sell units of the fund, at NAV related prices, at any time, directly from the fund. Open ended funds are offered for sale at a pre specified price, say Rs. 10, in the initial offer period .after a pre specified period, say 30 days, the fund is declared open for further sales and repurchases. These transactions happen at NAV related price.

CLOSE ENDED FUNDS:

They are open for sale to investors for a specific period, after which further sales are closed. Any further transaction for buying the units or repurchasing happens in the secondary markets, where Close ended funds are listed.

VALUATION & TAXATION OF MUTUAL FUND NAV of a Mutual Fund NAV stands for Net Asset Value. Normally, it is understood that NAV refers to Net Asset Value Per Unit. On any given day, NAV represents the actual value of one unit of the Fund. NAV is calculated as follows: Market value of all investments + Income + Profit Loss Expenses Number of Units in the mutual fund

Advantages of Mutual Funds

Professional Management Diversification Convenient Administration Return Potential Low Costs Liquidity Transparency Flexibility Choice of schemes Tax benefits Well regulated

Thank you