1. MUTUAL FUNDS
What is Mutual Fund:
A Mutual Fund is a trust
pools the savings of a number of investors
share a common financial goal
a diversified portfolio of financial instruments
equities, debentures / bonds or other instruments
the fund is then deployed in:
investment alternatives
Income is shared by unit holders
In proportion to their investment

2. MUTUAL FUNDS
Emergence of Mutual Fund in India
Mutual funds in India began in 1964
Unit Trust of India (UTI) was the first
Remains the market leader even today
Having about 68% of the market share
Lost monopoly in 1987
With entry of public sector mutual funds
Promoted by public sector banks
and insurance companies
Industry was open to foreign institutions in 1993
Real competitive structure began only then

3. MUTUAL FUNDS
Features / Advantages of Mutual Fund
Professional management
Diversification
Convenient administration
Return potential
Low Costs
Liquidity
Transparency

4. MUTUAL FUNDS
Schemes of the Mutual Funds (by structure)
A. Open ended mutual funds:
Redeemable on demand
available through out the year
Not Listed on the Stock Exchange
Fund would be ready to buy the shares
May issue new shares in lieu of them
Buy back on Net Asset Value (NAV)
Value depends on:
performance of select securities at exchange

5. MUTUAL FUNDS
Schemes of the Mutual Funds (by structure)
B. Close ended mutual funds:
Limited number of shares
Having Certain Maturity period
Subscription during a specified period
Listed on the exchange and traded
Listing and trading is to create liquidity
As they cannot be redeemed before maturity
These are similar to equity shares

6. MUTUAL FUNDS
Schemes of the Mutual Funds (by objective)
A. Income Oriented Schemes:
Fund offers fixed income to the investors
Fund itself invests the money in:
fixed income yielding bonds etc.
Ideal for capital stability and regular income
Capital appreciation might be low
Has a reduced risk

7. MUTUAL FUNDS
Schemes of the Mutual Funds (by objective)
B. Growth Oriented Schemes:
Fund offers Growth potential
Invests fund in:
Dividend paying companies
Companies with rapid capital appreciation
focus on low risk high yield equity
Ideal for long term growth
No regular income

8. MUTUAL FUNDS
Schemes of the Mutual Funds (by objective)
C. High Growth schemes:
Fund offers High Growth potential
Invests fund in:
Dividend paying companies
Companies with rapid capital appreciation
focus on high risk high yield equity
subject to lot of volatility
Ideal for aggressive investors

9. MUTUAL FUNDS
Schemes of the Mutual Funds (by objective)
D. Hybrid schemes:
Fund offers Income + Growth potential
Invests fund in:
Debentures and bonds; and
Equity in Dividend paying companies
Companies with capital appreciation
focus on Balanced investment
Hence they are also known as Balanced funds

10. MUTUAL FUNDS
Schemes of the Mutual Funds (by objective)
E. Tax saving schemes:
Fund offers Tax rebate
Investment in exempted avenues
Equity linked savings schemes
pension schemes
focus on Tax saving and appreciation

11. MUTUAL FUNDS
Schemes of the Mutual Funds (by objective)
F. Money market mutual funds:
Investment in:
short term debt securities
Such as deposits and bonds
Focus on high yielding short term investments
Tax saving and appreciation

12. MUTUAL FUNDS
Schemes of the Mutual Funds (by objective)
G. Other funds; such as:
Real Estate Funds
Off-shore funds
hedge funds
fund of funds
Exchange trade funds (ETFs)

13. MUTUAL FUNDS
Risks involved in the Mutual Funds
Market risk:
Market influenced by outside factors
Affecting particular or all industries
Prices of the scripts fall and rise
without connection with the performance
of the Company

14. MUTUAL FUNDS
Risks involved in the Mutual Funds
Inflation risk
Fall in rupee value
Reduced purchase power
Resulting in in-sufficient earnings
Credit risk
Weak financial position of the borrowing company
Affecting the payment of interest
Affecting the repayment of principal amount

15. MUTUAL FUNDS
Risks involved in the Mutual Funds
Investment risk
Investment may not be in proper sectors
Growth sectors might be ignored
Resulting in lesser returns than anticipated
Liquidity risk
Thin trading in the invested securities
Affecting the sale value
Hence returns not as anticipated

16. MUTUAL FUNDS
Computation of net asset value:
Fixed/unlimited number of shares are issued
By the fund at once or from time to time
The money received is referred to as Fund
Each scheme invests the fund in:
pre-promised nature of securities
These investments are termed as Assets
Redemption of the shares is done
on the basis of Net Asset Value
i.e. the proportion of the Net Assets to each share
or
Total net assets of the scheme
No. of units/shares outstanding

17. MUTUAL FUNDS
Risks involved in the Mutual Funds
Other risks:
Excessive diversification of the portfolio
Focus only on blue chip securities
Frequent buying and selling resulting
in brokerage and commission
Poor planning
Negligence of the fund managers

18. MUTUAL FUNDS
Constitution and management of Mutual Funds
Mutual fund shall be in the form of a trust
Trust deed shall be registered
under Indian Registration Act, 1908
Sponsor and Trustees shall be the parties
to the Trust Deed
Who can be a trustee
Person of ability, integrity and standing
Shall be independent (not associate with sponsor)
Cannot be a trustee of more than one fund
-unless he is an independent trustee

19. MUTUAL FUNDS
Constitution and management of Mutual Funds
Who can be a Sponsor:
Person of ability, integrity and standing
Sound track record; meaning:
Associated with financial services with 5 years
Positive net worth for preceding 5 years
has closed the 5th year in profits
40% contribution to the net worth of the AMC

20. MUTUAL FUNDS
Constitution and management of Mutual Funds
Incorporation of an Asset Management Company:
Every mutual fund shall have an AMC
Incorporated under Companies Act, 1956
AMC should be approved by SEBI
Enter into an agreement with Trustees
Shall formulate schemes
Raise money against units
Invest the funds in approved securities
Distribute income to the shareholder of the funds

21. MUTUAL FUNDS
Constitution and management of Mutual Funds
Registration of a mutual Fund:
Sponsor with a sound track record
Eligible trustees
Execution and Registration of trust deed
Incorporation of AMC
Agreement of AMC with the Trustees
Sponsor to contribute 40% of Net worth of AMC
Appointment of a Custodian

22. MUTUAL FUNDS
Restriction on investments by mutual funds
Investment in debts instruments (rated below
Investment) shall not exceed 15% of NAV
Debt instruments issued by a single issuer
only upto 10% of the NAV
Not more than 10% of the paid up capital in any Co.
Issue expenses shall not exceed 6% of the fund
No investment in unlisted associate company

23. MUTUAL FUNDS
Restriction on business activities of mutual funds
No activity other than management of the scheme
Shall not act as trustee of any scheme
Shall not invest in any of the schemes floated by it
Unless disclosed in the offer document