A mutual fund allows investors to pool their money together into a portfolio that is professionally managed. The document discusses the concept and operation of mutual funds, the history of mutual funds in India, the various types of mutual fund schemes categorized by constitution, investment objective, and nature of investments. It also covers the advantages of mutual funds such as professional management, diversification, convenience, liquidity, and tax benefits.

1. AMFI Certification Program

2. Mutual Funds
Conceptual Framework

3. What is a Mutual Fund ?
A mutual fund is a collective investment that
allows many investors, with a common
objective, to pool individual investments and
give to a professional manager who in turn
would invest these monies in line with the
common objective.

4. Operation flow chart
INVESTORS
RETURNS FUND MANAGER
SECURITIES

5. History of Indian Mutual Funds
Phase I (1964-87)
Set up by RBI, de- linked later.
Act of parliament
First scheme US 64, still outside SEBI
purview
Phase II (1987-93) entry of PSU Banks/ FIs
SBI in 87, LIC in 89, Indian Bank in 90
Phase III (1993-95) Entry of Private players
Phase IV (1993 onwards) SEBI regulation of
Mutual Funds

6. Types of
Mutual Funds -
Wide Range of Choice

7. Types of Mutual Funds Schemes
By Constitution
By Investment Objective
By Nature of Investments

8. By Constitution
OPEN-END CLOSE-END
No fixed maturity Fixed Maturity
Variable Corpus Fixed Corpus
Not Listed Generally Listed
Buy from and sell to Buy and sell in the
the Fund Stock Exchanges
Entry/Exit at NAV Entry/Exit at the
related prices market prices

9. By Constitution
Load or non load funds
Tax exempt or non tax exempt
Nature of Investments
Financial Assets (Equity/Debt/Money Market)
Physical Assets (Metal/ Real Estate)

10. Investment objective / patterns
Growth - Equity
Income - Debt
Balanced - Equity and Debt
Money Market - Liquid Debt
Tax Saving - Equity
Specialised - Equity
Assured Return - Equity and Debt

11. Aggressive Growth Funds
Objective - Aggressive Capital Growth
Investment Pattern
EQUITY OF
Less researched Companies
Speculative and momentum stocks
Suitable for investors who are comfortable in
taking high risk.

12. Diversified Growth Funds
Objective - Capital Growth
Investment Pattern - Weightage
EQUITY of
Well researched and high market cap
companies
Debt
Money market securities
Minimum time recommended for investment to
deliver expected returns - 5 years +
Suitable for investors looking at capital growth
over a longer period of time

13. Other variety of equity funds
Specialised Funds
Sector Funds
Offshore Funds
Small Cap Equity Funds
Option Income funds - writes options
ELSS - Indian Variety
Equity Index Funds
Value Funds
Equity Income Funds - invest in co. with
higher dividend yields i.e. power/utilities

14. Other equity oriented funds ...
Hybrid Funds
Balanced Funds
Growth & Income Funds
Assets Allocation Funds
Commodity Funds
Real Estate Funds

15. Debt Funds
Diversified Debt Funds
Focussed Debt Funds
Sector / Specialised / Offshore
Municipal bonds / infrastructure cos bond funds
Mortgaged backed
High yield debt funds
Assured Return Funds - Indian variety
Liquid Funds

16. Advantages of
Mutual Funds

17. Why Mutual funds…?
Stock markets are very sophisticated
Free pricing and integration with world
markets
Time , knowledge and luck
Substantial capital for diversification

18. Mutual Funds:
A Packaged Product
Professional
Management Diversification
Convenience
Liquidity
Tax Benefits

19. Convenience
Easy Way to Invest
Reduces excessive paperwork
Outsourcing of expertise

20. Diversification
Portfolio of investments spreads out Risk
Attempts Minimises value erosion
Potential losses are shared with other investors

21. Liquidity
Open-ended:
Assures liquidity
As liquid as the banks.
Close-ended:
Buying and selling can be done through
the stock exchange

22. Affordability
Provides an opportunity for a small investor
Invest as less as an amount of
Rs.3000/Rs.500 and in multiples of
Rs.1000/100 depending on the Scheme

23. Wide Choice
Offers a VARIETYOF SCHEMES
Meet the investment needs of all Investors

24. Your needs
Short Term Banks / Liquid Funds
Medium Term Debt or Debt Related
Funds
( 1 to 3 years)
Mix of Debt/Equity or
(3 to 5 years)
funds with an appropriate
mix (Balance)
Long Term Equity or Equity Related
Funds

25. MF’s and Tax Benefits
Capital Gain Benefits - Section 112 (1)
Long term capital gain tax of 10% without
indexation,or
Long term capital tax of 20% with indexation

26. Well regulated
Governed by Multiple agencies
MOF/ CLB/ ROC
SEBI
RBI
Trustees
Auditors
Board of Directors

27. SEBI
All Mutual Funds / AMC/ Trustee Companies to
be registered with SEBI
Responsible for protecting investors interest and
promote orderly growth of Mutual Fund Industry
Formulates regulations,monitors performance
and conduct of Mutual funds and enforces
compliance to regulations through reviewing
reports and regular inspections

28. Reserve Bank of India & SE
RBI
Dual supervision for bank sponsored AMCs
Issue concerning ownership bank
promoted AMC falls with RBI
Stock Exchange (SE)
Close ended MF listed of SE. Needs to
comply with listing guidelines.

29. Office of public Trustee
MF being public trustee - governed by Indian
Trust Act , 1882
Trustee Co or Board of Trustee accountable
to office of Public Trustee
Public trustees reports to Charity Comm.

30. Trustee and AMC to comply with Cos Act 1956
R e g is t r a r s o f C o m p a n ie s ( R O C )
D e p a r t m e n t o f C o m p a n y A f f a irs
C o m p a n y L a w B o a rd (C L B )
M in is t r y o f L a w & J u s t ic e

31. Ministry of Finance
Supervises both SEBI and RBI
Ultimate policy making & supervising body
Appellate Authority for any disputes over
SEBI guidelines

32. Investor’s rights
Proportionate ownership in scheme’s assets
Rights of information from Trustee
To received dividend warrants, inspect major docs
(Trust deed, investment management agreement,
R&T A Agreement, custodian services agreement
with 75% voting rights and approval of SEBI can
close the scheme, change the AMC.
Rights of info for fundamental change in the
scheme features and also an opportunity to
redeem units without any load.
Receive annual report and a/c statement

33. Investor’s rights & Obligations
Rights - Legal Limitations
Unit holder’s are not distinct from trust,
they cannot sue trust.
Sponsor do not have any legal obligations
(Limited to initial contribution)
No rights to prospective investors
Obligations
Must read offer doc & AOD
Beware of risk factors
Must monitor investments regularly

34. Investor’s complaint redressal mechanism
Client Servicing
Compliance Officer
Investors cannot be protected by companies
Act.

35. Mutual Fund - The Top Scorer
FDs FI Bonds MutualFunds
Accessibility Low Low High
Tenor Fixed (Medium) Fixed (Long) No Lock-in
Min. Invest. Rs. 10000 Rs. 5000 Rs. 500
Tax Benefits None 80L,88 None
Liquidity Low Very Low Very High
Convenience Medium Tedious Very High
Transparency None None Very High

36. The Offer Document

37. What is offer documents
Contains the details of scheme.
Filed with SEBI
Like Prospectus of an IPO
Close ended scheme - One Time
Open ended Scheme - Perpetual - kept
updated from time to time.

38. Significance
Legal document that protects and governs the
right of the investor to information
Is the primary vehicle for the investment decision
Is the operating document and describes the
fundamental attributes of schemes.
One of the most important sources of information
for the prospective investor
Is a reference document for the investor to look for
relevant information at any time.

39. Mandatory Information
• Details of the Sponsor
• Description of the scheme and investment
objective/strategy
• Terms of issue
• Historical statistics
• Investors’ Rights and Services
Key Information Memorandum that is distributed with the
application form is an abridged version of the offer
document.

40. Investment Options & Features
• Options
•Growth
•Dividend and Dividend Reinvestment
•Plans
•Systematic Investment Plan - SIP
• Value Averaging Plan - VAP
• Systematic Withdrawal Plan - SWP
•Systematic Transfer Plan - STP
• Other
• Nomination facility

41. Who can invest ?
• Resident Indian Individuals
• Indian Companies
• Trusts / charitable institutions / PFs
• Banks/ FIs / NBFCs
• Insurance Companies
• NRIs/ OCBs/ FIIs
• Partnership firms etc.

42. NAV - COMPUTATION
NAV = Net assets of scheme / No of units Outstanding
i.e. Market value of investments+ Receivables+
Other accrued income+ Other assets- accrued
expenses- Other Payables- Other liabilities
No. of units outstanding as at the NAV date
Imp :
Day of NAV Calculation is known as valuation day

43. HOW NAV IS COMPUTED
• Market value of Equities - Rs.100 crore - Asset
• Market value of Debentures - Rs.50 crore - Asset
• Dividends Accrued - Rs.1 crore -Income
• Interest Accrued - Rs.2 crore - Income
• Ongoing Fee payable - Rs.0.5 crore - Liability
• Amt..payable on shares purchased -Rs.4.5 crore - Liability
• No. of units held in the Fund : 10 crore units
• NAV per unit = [(100+50+1+2)-(0.5+4.5)]/10
= [153-5]/10
= Rs. 14.80

44. NAV - Other information
•Open end funds to declare NAV daily
•NAV to be published at least weekly
•Close end Schemes (which are not listed) may publish
NAV monthly/qt with prior approval from SEBI (MIP)
•NAV has to consider up to date transactions
•Non - recorded transactions not to affect NAV calculation
by more than 2%

45. NAV
• Nav is influenced by
– Purchase and sale of Investment
– Valuation of Investment
– Other assets and Liabilities
– Units sold or redeemed.

46. CHANGE IN NAV
FORMULA :
For NAV change in absolute terms =
(NAV at end of period - NAV at beginning of period) * 100
NAV at beginning of period
For NAV change in annualised terms =
( NAV change in % in absolute terms) * (365 / No. of days )

47. Loads
• Entry Load or front ended load
Paid at the time of purchase
Sale Price = NAV / (1- Sales Load, if any)
• Exit Load or back ended load
Paid at the time of exit
Redemption Price = NAV/(1+ Exit Load)
• Contingent Deferred Sales Load (CDSL)
– Deferred exit load depending on the period
– Also known as deferred load

48. PRICING OF UNITS
•Sale price not greater than 107% of the NAV
•Re-purchase price to be not lower than 93% (95% for
close-end funds) of the NAV
•Difference between the repurchase & sale price can
not be more than 7% of the sale price

49. Sale Price
• Sale Price is the price at which units are sold to
investors.
• Sale Price = NAV + Entry load
• Formula for computation of Sale Price =
NAV/(1-Load)
Assuming an entry load of 2% in the earlier
NAV computation example
Sale Price = 14.80/(1- 0.02)
= 15.10

50. MUTUAL FUND ACCOUNTING &
MATHEMATICS

51. FEES & EXPENSES
Initial Issue
Transaction Annual Recurring Expenses
Cost Expenses
Entry / Exit load AMC Fee
Custodian Fee
CDSC for no-load Registry Exp.
schemes Trustee Fee
Audit Fee
Mktg. & Selling Exp.
Brokerage Exp.
Others

52. Fees & Expenses
• Initial Issue expenses
– For launching of the scheme
– Can charge up to 6%
• Recurring Expenses
– Mkt & selling exp including brokerage
– Transaction cost
– R&T cost
– Custodian Fees
– Audit fees etc
– Investor Communication’s cost

53. Fees & Expenses
• Amc can charge Investment management fee to
the fund on weekly avg. net assets.
• The limits are: (Subject to overall limit of 6%)
– 1.25% for up to Rs.100 cr Of weekly avg net assets
– 1% in excess of Rs.100 cr.
– No Load schemes can charge an additional fee of 1%

54. Fees & Expenses
• Total Expenses that can be charged to the
Fund ( excluding entry and exit loads):
Equity Debt
– On the first Rs.100 cr 2.50% 2.25%
– On the next Rs.300 cr 2.25% 2.00%
– On the next Rs.300 cr 2.00 % 1.75%
– On the balance assets 1.75% 1.50%
Based on average weekly net assets

55. MUTUAL FUNDS - FEES
• Initial issue expenses
Charge to the scheme capped at 6% of the initial resources
raised under that scheme
• Entry/Exit Loads - Transaction costs
Sale price not greater than 107% / Re-purchase price not lower
than 93% (95% for close-ended schemes) of the NAV
• Contingent Deferred Sales Charge ( For No-Load Schemes)
Ceiling For redemption within 1year 4%
For redemption within 2years 3%
For redemption within 3years 2%
For redemption within 4years 1%

56. AMORTISATION
Initial Expenses amortisation for load schemes -
• for close-ended schemes - on a weekly basis over the
period of the scheme
• for open-ended schemes - annually over a period not
greater than 5 years
• Un-amortised portion to be added to other assets for
computation of NAV
• Amortisation not part of normal recurring expenses