MUTUAL FUND MANAGEMENT

1
INTRODUCTION
TO
MUTUAL FUNDS

WHAT IS A MUTUAL FUND?
• TYPE OF FINANCIAL
INTERMEDIARY THAT POOLS
FUNDS FROM INVESTORS
• THESE FUNDS MANGED UNDER
DIVERSIFIED PORTFOLIO BY
INVESTMENT MANAGERS
• TERM “MUTUAL” IS USED ALL ITS
RETURNS – EXPENSES ARE SHARED
BY FUNDS UNIT HOLDERS

MF INVESTING V/S INVESTING
THROUGH BANKS
• MF ARE ONLY ONE KIND OF
INTERMEDIARY
• BANKS ARE LARGEST
INTERMEDIARY IN FINANCIAL
SYSTEM, INVT. IN BANK ENTITLE THE
DEPOSTORS DIFFERENT FINANCIAL
CLAIMS THAN THE ONE
GENERATED BY MFS

ADVANTAGES OF MUTUAL
FUNDS
• DIVERSIFICATION BENEFIT
• LOW TRANSACTION COSTS
• AVAILABILITY OF VARIOUS
SCHEMES
• PROFESSIONAL MANAGEMENT
• LIQUIDITY
• TAX BENEFITS
• FLEXIBILITY

DISADVANTAGES OF MUTUAL
FUNDS
MFs ARE:
• NOT GET RICH QUICK
INVESTMENT
• NOT RISK FREE INVESTMENT
• NOT ASSURED RETURN
INVESTMENT
• NOT UNIVERSAL SOLUTION TO ALL
INVESTMENT NEEDS

HISTORY OF MUTUAL FUND
INDUSTRY
• THE SCOTTISH AMERICAN CO.
ESTABLISHED IN UK IN 1860 AS CLOSE
ENDED & INVESTED PRIMARILY IN STOCK
MARKET
• IN 19TH
CENTURY INVT. COs CAME IN US
TOO DID NOT GROW LIKE UK DUE TO
LACK OF INVESTROS INTEREST IN STOCK
MARKET
• IN 1920s INVT. COs WERE REVIVED WITH
BOOM IN STOCK MARKET THEIR GROWTH
WAS MORE IN US THAN IN UK

MUTUAL FUND INDUSTRY IN
INDIA PHASE - I 1964-87
• UTI WAS ESTABLISHED IN 1963
• IT WAS SET UP BY RBI
• IN 1978 UTI WAS DELINKED FROM RBI
• SCHEME LAUNCHED BY UTI WAS UNIT
SCHEME 1964
• AT THE END BY 1988 UTI HAD 6700
CRS AUM

ENTRY OF PSU FUNDS
PHASE – II 1987-93
• 1987 MARKED BY ENTRY OF NON-UTI,
PSU, LIC & GIC
• SBI MF WAS 1ST
NON-UTI MF
ESTABLISHED IN JUNE 1987
• FOLLOWED BY CANBANK, PNB,
INDIAN BANK, BOI, BOB AND LIC MF
• AT THE END OF 1993 MF INDUSTRY
HAD AUM RS.47000 CRS

ENTRY OF PVT SECTOR FUNDS
PHASE – III 1993-2003
• WITH THE ENTRY OF PVT MFs NEW ERA
STARTED IN MF INDUSTRY
• KOTHARI PIONEER (NOW MERGED WITH
FRANKLIN TEMPLETON) WAS THE 1ST
PVT
SECTOR MF REGISTERED IN 1993
• IN 1993 1ST
MF REGULATIONS CAME ALL
MFs EXCEPT UTI WAS TO BE REGISTERED &
GOVERNED
• 1993 SEBI REGULATIONS WERE SUBSITUTED
BY SEBI MF REGULATIONS 1996

PHASE – IV SINCE FEB 2003
• IN FEB 2003 DUE TO REPEAL OF UTI ACT
1963 UTI WAS BIFURCATED INTO 2
SEPARATE ENTITIES
• ONE IS SPECIFIED UNDERTAKING OF UTI
WITH ASSETS OF US 64 AND ASSURED
RETURN SCHEMES
• SECOND IS UTI MF SPONSORED BY SBI,
PNB, BOB, AND LIC REGISTERED WITH SEBI
AND FUNCTIONS UNDER MF REGULATIONS
• IN MARCH 2006 UTI MF HAVING MORE
THAN 76000 CRS AUM

FUTURE OF MF INDUSTRY IN INDIA
• INDIAN MF INDUSTRY PASSING THROUGH
A TRANSFORMATION, IT HAS A NO. OF
REGULATORY DEVELOPMENTS
• REGULATORY CHANGES HAS BEEN MADE
KEEPING IN MIND BEST INTEREST OF
INVESTORS
• MARKET PARTICIPANTS TRYING TO
MAINTAIN ITS PACE OF GROWTH
• MFs ARE RECONSTRUCTING THEIR
BUSINESS TO PROVIDE FOR INCREASE
EFFICIENCIES AND INVESTOR
SATISFACTION

3
ORGANISATIONAL
STRUCTURE OF
MUTUAL FUNDS

ORGANISATIONAL STUCTURE OF A
MF IN US
• MF IS ORGANISED EITHER AS A CO. OR
BUSINESS TRUST
• SHAREHOLDERS - INVESTMENT
• BODs – MANAGING FUNDS PORTFOLIO
ACCORDING TO ITS OBJECTIVES
• CUSTODIAN – HOLDS THE FUNDS ASSETS
• INDEPENDENT PUBLIC ACCOUNTANT –
CERTIFIES FUNDS FINANCIAL STATEMENTS
• TRANSFER AGENTS – EXECUTIVE ALL
TRANSACTIONS
• PRINCIPAL UNDERWRITER – SELLS FUNDS
EITHER DIRECTLY OR THROUGH OTHER FIRMS

ORGANISATIONAL STUCTURE OF A
MF IN UK
• IN UK THERE ARE UNIT TRUSTS & INVESTMENT
TRUSTS
• UNIT TRUSTS ARE OPEN ENDED FUNDS
CREATED BY TRUST DEED
• TRUSTEES SAFEGAURD THE UNIT HOLDERS
INTEREST, ASSETS ARE HELD BY TRUSTEE ON
BEHALF OF BENEFICIARIES
• ASSETS ARE HELD BY THE TRUSTEES THEY
SUPERVISE THE REGISTER OF UNIT HOLDERS
SETTLE ALL INVT. TRANSACTIONS
• INVESTMENT TRUSTS ARE CLOSE ENDED THEY
HAVE A FIXED NO. OF SHARES IN ISSUE

LEGAL STRUCTURE OF A MF IN INDIA
• MFs ARE CONSTITUTED AS TRUST, GOVERNED BY
ITA, 1882
• MF IS CREATED BY ONE OR MORE SPONSORS
WHO ARE MAIN PERSONS BEHIND MF BUSINESS
• EVERY TRUST HAS BENEFICIARY WHO INVEST IN
VARIOUS SCHEMES OF MF
• THE OPERATION OF MF TRUST ARE GOVERNED
BY TRUST DEED EXECUTED BETWEEN SPONSORS
& TRUSTEES
• TRUST ACT THROUGH ITS TRUSTEES, ROLE OF
PROTECTING INVESTORS IS THAT OF TRUSTEES

KEY CONSTITUENTS OF A MF
SPONSORS:
• PROMOTER OF MF
• CARRYING ON BUSINESS IN FINANCIAL
SERVICES FOR 5 YEARS
• POSITIVE NET WORTH FOR EACH OF
THOSE 5 YEARS
• LATEST NETWORTH SHOULD BE MORE
THAN THE SPONSOR CONTRIBUTES TO
THE CAPITAL OF AMC
• SPONSOR NEEDS TO HAVE A MIN 40%
SHARE HOLDING IN CAPITAL OF AMC

TRUSTEES
• EVERY TRUSTEE HAS TO BE A PERSON
OF ABILITY INTEGRITY AND STANDING
• SPONSOR HAVE TO APPOINT AT LEAST
4 TRUSTEES IF TRUSTEE CO APPOINTED
CO WOULD NEED TO HAVE AT LEAST 4
DIRECTORS
• 2/3 OF THE TRUSTEES/DIRECTORS NEED
TO HAVE INDEPENDENT TRUSTEES
• TRUSTEES PERFORM KEY ROLE IN LEGAL
COMPLIANCES AND PROTECTING
INTEREST OF INVESTORS

AMC
• DAY TO DAY OPERATIONS OF ASSET MANGEMENT
HANDLED BY AMC
• DIRECTORS OF AMC HAVING ADEQUATE
PROFESSIONAL EXPERIENCE IN FINANCE AND
FINANCIAL SERVICES
• PRIOR APPROVAL OF THE TRUSTEES IS REQUIRED
BEFORE A PERSON APPOINTED AS DIRECTOR
• 50% OF THE DIRECTORS SHOULD BE INDEPENDENT
NOT ASSOCIATED WITH SPONSOR OR ANY
SUBSIDIARIES OR THE TRUSTEES
• AMC MUST HAVE MIN NETWORTH OF 10 CRS
• APPOINTMENT OF AMC CAN BE TERMINATD BY
MAJORITY OF TRUSTEES OR BY 75% OF THE UNIT
HOLDERS

OTHER SERVICE PROVIDERS
• CUSTODIAN
• RTA
• AUDITORS
• FUND ACCOUNTANTS
• DISTRIBUTORS
• COLLECTING BANKERS
• KYC REGISTRATION AGENCIES

4
CLASSIFICATION
OF MUTUAL FUND
PRODUCTS

TYPES OF FUNDS
OPEN ENDED FUNDS:
• OPEN FOR INVESTORS TO ENTER
OR EXIT AT ANY TIME
• NEW/EXISTING INVESTOR BUY
UNITS OF OPEN ENDED SCHEME IS
CALLED SALE TRANSACTION -
EQUAL TO NAV
• INVESTOR CHOOSE TO GET BACK
FROM THE SCHEME IS CALLED RE-
PURCHASE TRANSACTION –
LINKED TO NAV

CLOSE-ENDED FUNDS
• CEFs HAVE A FIXED MATURITY
• INVESTORS BUY UNITS OF CES
DURING NFO
• FUND MAKE ARRANGEMENT FOR
UNITS TO BE TRADED POST NFO IN
A STOCK EXCHANGE
• LISTING IS COMPULSORY FOR CESs
• INVESTOR SELL OR BUY UNITS IN
THE SE

INTERVAL FUNDS
• COMBINE FEATURES OF BOTH OPEN
AND CLOSE ENDED SCHEMES
• IFs ARE LARGELY CLOSE ENDED BUT
BECOME OPEN ENDED AFTER PRE-
SPECIFIED INTERVALS
• INVESTOR ARE NOT COMPLETELY
DEPENDENT ON SE FOR BUY OR SELL OF
UNITS OF THE INTERVAL FUND

ACTIVELY MANGED FUNDS & PASSIVE
FUNDS
AMFs :
• FMs HAS FLEXIBLE TO CHOOSE THE
INVESTMENT PORTFOLIO WITHIN THE INVT
OBJECTIVE OF THE SCHEME
• INVESTORS EXPECT ACTIVELY MANAGED
FUND TO PERFORM BETTER THAN THE
MARKET
PASSIVE FUNDS:
• INVEST ON THE BASIS OF SPECIFIED INDEX
• PASSIVE FUND TRACKING THE BSE SENSEX
IS BUY ONLY SHARES THAT ARE PART OF
THE BSE SENSEX
• SUCH SCHEMES ALSO CALLED INDEX
FUNDS

TYPES OF DEBT FUNDS
• GILT FUNDS
• DIVERSIFIED DEBT FUNDS
• JUNK BOND SCHEMES
• FIXED MATURITY PLANS
• FLOATING RATE FUNDS
• LIQUID SCHEMES

TYPES OF EQUITY FUNDS
• DIVERSIFIED EQUITY FUND
• SECTOR FUNDS
• THEMATIC FUNDS
• EQUITY LINKED SAVINGS SCHEMES
(ELSS)
• EQUITY INCOME/DIVIDEND YIELD
SCHEMES
• ARBITRAGE FUNDS

TYPES OF HYBRID FUNDS
• MONTHLY INCOME PLAN
• CAPITAL PROTECTED SCHEMES

GOLD FUNDS
• FUNDS INVEST IN GOLD & GOLD
RELATED SECURITES
• GOLD ETF LIKE AN INDEX FUND
INVEST IN GOLD
• GOLD SECTOR FUNDS

REAL ESTATE FUNDS
• THESE FUNDS TAKE EXPOSRE TO REAL
ESTATE AS AN ASSET CLASS
• COMMODITY FUNDS:
• COMMODITIES AS AN ASSET CLASS
INCLUDE FOOD CROPS,SPICES, FIBRES,
COPPER, ENERGY PRODUCTS &
PRECIOUS METALS

INTERNATIONAL FUNDS
• INVEST OUTSIDE THE COUNTRY
• MF OFFER A SCHEME TO INDIAN
INVESTOR TO INVEST ABROAD
• TIE UP WITH FOREIGN FUNDS

FUND OF FUNDS
• FUNDS STRUCTURE TO INVEST IN
VARIOUS OTHER FUNDS
• FUNDS PRE-SPECIFIED THE MF
SHCEMES THEY WILL INVEST IN
• DESIGNED TO HELP INVESTORS GET
OVER THE TROUBLE OF CHOOSING
MULTIPLE SCHEMES

EXCHANGE TRADED FUNDS
• ETF ARE OPEN ENDED INDEX
FUNDS TRADED IN SE
• INVESTORS HAVE TO BUY AND SELL
UNITS OF THE ETF IN THE SE

DIFFERENT OPTIONS PROVIDED BY
MUTUAL FUNDS
• DIVIDEND PAYOUT, DIVIDEND
RE-INVESTMENT & GROWTH
OPTION
• SYSTAMATIC INVESTMENT PLAN
(SIP)
• SYSTAMATIC WITHDRAWAL PLAN
(SWP)
• SYSTAMATIC TRANSFER PLAN (STP)

5
INVESTMENT
PROCEDURE IN
MUTUAL FUNDS

OFFER DOCUMENT
• OD IS A LEGAL DOCUMENT
WHICH PROVIDE OVERALL
INFORMATION ABOUT MF SCHEME
• SEBI HAS PRESCRIBED STANDARD
FORMAT OF OD THAT MFs IN INDIA
FOLLOWS
• LIKE THE PROSPECTUS THE OD IS
LIKE TO DISCLOSE INFORMATION
ABOUT INVESTMENT INSTRUMENTS

CONTENTS OF OFFER DOCUMENT
• FRONT PAGE ALWAYS SHOW THE DATE
OF PUBLICATION NAME & TYPE OF
SCHEME
• STATEMENT ABOUT INVT. OBJECTIVES &
INVT. POLICY OF SCHEME
• RISK FACORS, HISTORIC STATISTICS,
FEATURE & PLANS OF SCHEME, MGT. OF
FUNDS, LOAD & EXPENSES, INVT.
RESTRICTIONS, REDEMPTION &
SWITCHOVER, TAX TREATMENT, NAV,
MIN. AMT OF INVT.

MUTUAL FUND OFFER DOCUMENT
AND FACT SHEET
• MF OD AND FACT SHEET CARRY
INFORMATION THAT GIVES A GREAT
DEAL OF DETAIL ABOUT THE FUND
• DATA PROVIDED BY THE AMCs IN FACT
SHEETS ARE IMPORTANCE TO THE
INVESTORS
• FACT SHEET GUIDE THE INVESTORS TO
GET MORE INFORMATION ON SCHEME
AND INVT. DECISION

KEY INFORMATION
MEMORANDUM - KIM
• KIM IS ABRIDGED VERSION OF OD IT IS
USUALLY PROVIDED WITH APPLICATION
FORM
• KIM IS PREPARED AS PER GUIDELINES ISSUED
BY SEBI & NEED TO UPDATE ATLEAST ONCE IN
2 YEARS
• CONTENTS OF KIM: INVT. OBJECTIVES, ASSET
ALLOCATION PATTERN, BENCHMARK INDEX,
DIVIDEND POLICY, NAME OF FM & TRUSTEES,
PERFORMANCE OF SCHEMES, EXPENSES
LOAD STRUCTURE,NAV, INVESTORS
GRIEVANCE CONTACTS

ADVERTISEMENT CODE
KEY CONTENTS
• AN ADVT. SHALL BE FAIR, TRUTHFUL & CLEAR, IT
SHOULD NOT CONTAIN PROMISE OR FORECAST
WHICH IS UNTRUE OR MISLEADING
• IT SHOULD NOT COMPARE THE PERFORMACNE
OF OTHER FUNDS UNLESS IT IS RELEVANT TO BE
DISCLOSED TO INVESTORS
• COMPUTATION OF NAV & OTHER
CALCULATIONS SHOULD BE BASED ON NORMS
PRESCRIBED BY SEBI
• MF SHOULD INDICATED DETAILS OF TRUSTEES,
FMs, AND ADVISERS

ADVERTISEMENT CODE
CONTD….
• ALL ADVT. CONTAIN INFORMATION ABOUT
YIELD & PERFORMANCE SHOULD DISCLOSE
ALL RISK FACTORS & MAKE CLEAR
STATEMENT
• “INVT. IN MF IS SUBJECT TO MARKET RISK
PLEASE READ THE OD CAREFULLY BEFORE
INVESTING”
• IT SHOULD ALSO SPECIFY A CLAUSE NAV OF
SCHEME SUBJECT TO CHANGE AS PER
CHANGES IN SECURITIES MARKET
• ADVT. ON PERFORMANCE OF SCHEME OR
AMC SHOULD BE ON HISTORIC DATA

STEPS IN MUTUAL FUND
INVESTMENT
• IDENTIFICATION OF NEEDS
• CHOOSING THE APPROPRIATE FUND
• SELECTION OF MIX
• REGULAR INVESTMENT
• COST & TAX IMPLICATION
• INVESTMENT
• REVIEW & STRATEGY

PROCEDURE FOR INVESTING
IN A FUND
• APPLICATION FORM
• SUBMISSION OF DOCUEMENTS
• ACKNOWLEDGMENT
• VERIFICATION
• ISSUE OF STATEMENT
• REVIEW
• INVESTMENT STRATEGY

SPECIAL AREAS OF MF
INVESTMENT
PROCEDURE TO :
• BUY ADDITIONAL UNITS
• SWITCH UNITS
• REDEEM/REPURCHASE OF UNITS
• POWER OF ATTORNEY (POA)
• NOMINATION

6
RIGHTS AND
DUTIES OF
INVESTORS

INVESTMENT PARAMETERS UNDER SEBI
REGULATIONS
SEBI HAS ISSUED A NO. OF NORMS
REGULATING THE PATTERN OF INVESTMENT
BY MFs
• MAX. INVT. IN UNLISED SHARES OR CONVERTIBLES TO
BE RESTRICTED TO 5 OF THE CORPUS REFLECTED BY
NAV
• MAX. INVT.IN ONE CO. CAN BE 10% OF NAV
• TOTAL INVT. IN UNRATED DEBT SHOULD NOT EXCEED 25
% OF NAV
• NO SINGLE MF CAN HOLD 10 PERCENT OF VOTING
RIGHTS OR 10% OF SINGLE CO.
• KYC NORMS SHOULD BE OBSERVED

DISCLOSURE AND COMPLIANCE
STANDARDS
• ALL MFs TO DISCLOSE THEIR FULL PORTFOLIO WITHIN ONE
MONTH FROM CLOSING OF FINANCIAL YEAR,
COMMUNICATION SHOULD BE THROUGH POSTAL SYSTEM
TO U/Hs OR PUBLISHED IN NEWSPAPERS
• AMC MUST PREPARE A COMPLIANCE MANUAL AND
DESIGN INTERNAL AUDIT SYSTEM BEFORE LAUNCHING THE
SCHEME
• TRUSTEES SHOULD ENSURE THAT THE RECOMMENDIONS
AND OBSERVATION OF AUDIT COMMITTEE ARE
IMPLEMENTED AND RITHT ACTION TAKEN
• TRUSTEES SHALL ALSO REVIEW ALL TRANSACTIONS OF MFs
WITH ASSOCIATES OR REGULAR BASIS
• AMC SHOULD CONSTITUTE IN-HOUSE VALUATION
COMMITTEE TO REVIEW THE SYSTEM & PRACTICE OF
VALUATION OF SECURITIES

WHO CAN INVEST IN MUTUAL FUNDS
• RESIDENTS: ADULT INDIVIDUALS HOLDING SINGLY OR
JOINTLY, MINORS CAN INVEST THROUGH PARENTS OR
GUARDIANS, HUF THROUGH THEIR HEAD OR KARTA
• COs, CORPORATE BODIES, BANKS, NBFCs, ASSOCIATION
OF PERSONS, BODY OF INDIVIDUALS, RELIGIOUS AND
CHARITABLE TRUSTS, SOCIETIES REGISTERED UNDER
SOCIETIES REGISTRATION ACT 1960
• MFs REGISTERED WITH SEBI
• FOREIGN INSTITUTIONAL INVESTORS REGISTERED WITH SEBI
• OVERSEAS FINANCIAL ORGANISATION WHICH HAVE
ENTERED INTO AN ARRANGEMENT FOR INVT. IN INDIA
• NRIs/OCBs/FIIs & PERSONS OF INDIAN ORIGIN RESIDING
ABROAD ON A FULL REPATIATION/NON-REPATRIATION
BASIS

RIGHTS OF INVESTORS
• ALL RIGHTS & DUTIES OF INVESTORS ARE
LAID DOWN IN OFFER DOCUMENT. OD
GIVES & DISCLOSE ALL MATERIAL FACTS
REQUIRED OF INVT. DECISION
• RIGHT TO HAVE PROPOTIONATE BENEFITS
• RIGHT TO INFORMATION
• RIGHT TO HAVE TIME BOUND SERVICES
• RIGHT TO APPROVE CHANGES
• RIGHT TO WIND UP MF SCHEME
• RIGHT TO WIND UP AMC

DUTIES OF AN INVESTOR
• STUDY OF OTHER DOCUMENTS
• SUPPLY OF DOCUEMENTS
• STUDY OF REPORTS

7
INVESTMENT
DECISION
MAKING IN
MUTUAL FUND

DIRECT INVESTMENT V/S INDIRECT
INVESTMENT
• DIRECT INVT. REFERS TO INVESTMENT IN
MULTIPLE INVT. AVENUES BY INVESTOR
• INVESTORS BEARS ALL RISK , CHOOSE TO
INVEST AS PER OWN NEED OF RETURN,
LIQIDITY ETC.
• INDIRECT INVT. REFERS TO INVT. IN MARKET
THROUGH A PERSON/INSTITUTE/FUND
WHICH HAS MARKET KNOWLEDGE TO
OUTPERFORM RISK

CRITERIA FOR SELECTING MUTUAL FUND
• HISTORIC PERFORMANCE
• TIME FACTOR
• AGE AND SIZE OF FUND
• FUND MANAGER
• PRICE TO EARNING RATIO
• EXPENSES RATIO
• TURNOVER OF PORTFOLIO

RATING OF MUTUAL FUND SCHEMES
• RATING OF MF HELPS INVESTORS TO MAKE SUITABLE
INVT. DECISIONS
• RATINGS GIVEN BY CRISIL, ECONOMIC TIMES AND
VALUE RESEARCH INDIA ARE GENERALLY
CONSIDERED FOR PERFORMANCE EVALUATION OF
MF SCHEMES
• RANKING GIVEN BY CRISIL – TOP 10% VERY GOOD –
NEXT 20% GOOD – NEXT 40% AVERAGE NEXT 20% –
BELOW AVERAGE LAST 10% - POOR
• ECONOMIC TIMES TOP 10% – PLATINUM FUNDS NEXT
20% GOLD FUNDS NEXT 40% SILVER NEXT 30%
GENERAL
• VALUE RESEARCH – TOP 10% 5 STAR, NEXT 22.5% 4
STAR, NEXT 35% 3 STAR, NEXT 22.5% 2 STAR, LAST 10%
1 STAR

CHOISE BETWEEN EQUITY FUNDS
GUIDELINES MAY BE FOLLOWED BY INVESTORS
FOR INVESTING IN EQUITY MFs
• INVEST IN MF SCHEME WITH BROADER INVT. POOL
• CONSIDER COST OF ACQUISITION OF FUND
(LOAD & EXPENSES RATIO)
• CONSIDER PERFORMANCE OF SCHEME FOR LAST
DECADE OR DATE OF INCEPTION
• DON’T SELECT TOPMOST SCHEMES IN A
CATEGORY, THEY MAY NOT PERFORM AS PER
EXPECTATION IN LONG TERM
• DON’T INVT. IN SUCH SCHEMES WHICH ARE
UNDERPERFORMING COMPARED TO MARKET

CHOISE BETWEEN DEBT FUNDS
THREE IMPORTANT CRITERIAS FOR
EVALUATION OF INVT. IN DEBT FUND
• CREDIT RISK
• INTEREST RATE RISK
• EXPENSE RATIO

8
VALUE CONCEPTS
AND
NET ASSET VALUE

VARIOUS CONCEPTS OF VALUE
• BOOK VALUE – IT’S A VALUE OF AN
INVT./FINANCIAL ASSET RECORDED IN THE
BOOKS OF ACCOUNTS
• IT IS EQUALLY APPLICABLE FOR LIABILITIES
TOO
• MF BOOK VALUE IS TOTAL OF ALL
INDIVIDUAL ASSETS
• IT IS CALLED UNIT CAPITAL OF THE SCHEME

• INVESTMENT VALUE – THIS TYPE OF VALUE
THOUGHT OF VALUE AS FUTURE BENEFITS
DUE TO OWNERSHIP IN EQUITY
• EQUITY INSTRUMENTS PROVIDE YIELD
BENEFITS IN FUTURE IN VARIOUS FORMS
• INVT. VALUE MAY DIFFER FROM POTENTIAL
BUYER TO ANOTHER FOR REASONS:
• VALUE CREATION ABILITY, TAX STATUS, RISK
& VOLATILITY

• GOING CONCERN VALUE – GOING
CONCERN VALUE TYPICALY ESTIMATES
PROFITABILITY OF OPERATIONS OF
BUSINESS IF IT IS CONTINUES IN NEAR
FUTURE
• VALUE MEASUREMENT FOLLOWS 2 STEPS
• ESTIMATING FUTURE BENEFITS
• VALUE MEASUREMENT USING
CAPITALISATION FACTOR

• INTRINSIC VALUE – ALSO KNOWN AS
FUNDAMENTAL VALUE, CONCEPT USED
FOR VALUATION OF VARIOUS SECURITIES ,
STOCKS, DEBENTURES
• VALUE OF INVT. DETERMINED ON THE BASIS
OF EARNING POWER AND EARNING
QUALITY OF INVT.
• INTRINSIC VALUE > MARKET VALUE – BUY
• INTRINSIC VALUE < MARKET VALUE - SELL

NET ASSET VALUE
• MONEY INVESTED BY INVESTORS IN MFs IS
RECORDED AS UNIT CAPITAL AND NOT AS
LIABILITY OR DEPOSITS ACCEPTED BY FUND
• INVT. OF FUNDS REFLECTED IN BALANCE
SHEET AS ASSETS OF AMC
• FOR ALL MF SCHEMES IT IS MANDATORY
TO VALUE THEIR INVESTMENT AND
COMPUTE THE VALUE OF EACH UNIT
KNOWN AS NET ASSET VALUE (NAV)

NET ASSET VALUE
• FORMULA: NAV = NET ASSETS OF SCHEME
NO. OF OUTSTANDING UNITS
• MARKET VALUE OF INVESTMENT +
RECEIVBLES + ACCRUED INCOME –
LIABILITIES – ACCURED EXPENSES
• NO. OF OUTSTANDING UNITS
• FACTORS AFFECTING NAV:
• PURCHASE/SALE OF SECURITIES
• VALUATION OF SECURITIES ON DAILY BASIS
• OTHER ASSETS/LIABILITIES
• UNITS PURCHASED/REDEEMED

NET ASSET VALUE
• ADDITIONS TO BE MADE FOR NAV:
• DIVIDENDS/INTEREST RECEIVABLE
• OTHER RECEIVABLES
• OTHER ASSETS
• DEDUCTIONS TO BE MADE FOR NAV:
• EXPENSES OUTSTANDING
• LIABILITIES FOR UNPAID ASSETS
• SHORT TERM/LONG TERM LIABILITIES

SEBI REGULATIONS FOR NAV
CALCULATION
• SEBI REQUIRES MFs TO COMPUTE NAV OF
EACH SCHEME AND TO DISCLOSE DAILY
OR WEEKLY DEPENDING ON TYPE OF
SCHEME
• VALUATION OF SECURITIES SHOULD BE
BASED ON VIIIth SCHEDULE OF SEBI NORMS
• SALE & REPURCHASE PRICE OF EVERY
SCHEME SHOULD BE BASED ON NAV ON
GIVEN VALUATION DATE

BASIC TERMS/CONCEPTS
• ENTRY LOAD:
• IN MF SCHEME INVESTORS ARE UNDER
OBLIGATION TO BEAR EXPENSES FOR
PROFESSIONAL SERVICE PROVIDED BY
AMC, ONE OF EXPENSES IS ENTRY LOAD
• ENTRY LOAD IS LEVIED TO COVER UP
SELLING & DISTRIBUTION EXPENSES
• ENTRY LOAD ALSO KNOWN AS “FRONT
LOAD” IT ALSO AFFECTS BUYING PRICE
FOR INVESTOR

• EXIT LOAD:
• INVESTOR NEEDS TO PAY ADDITIONAL
CHARGE AT THE TIME OF ENTERING IN
SCHEME, SIMILARLY HE HAS TO INSURE
EXPENSE AT THE TIME OF EXIT FROM
SCHEME
• ALL SCHEME MAY NOT HAVE EXIT LOAD
AND EXIT LOAD FOR ALL SCHEMES MAY
NOT BE SAME
• SOME SCHEMES CHARGE CONTIGENT
DEFERRED SALES CHARGE

• ASSET MIX:
• REFERS TO ALLOCATION OF FUNDS OF
SCHEME TOWARDS VARIOUS ASSETS LIKE
STOCKS, BONDS CASH ETC.
• ASSET MIX OF SCHEME DEPENDS ON
NATURE OF FUND
• IF ASSET MIX IS 60:20:20 IT MEANS SCHEME
PUT 60 PERCENT IN STOCKS 20 PERCENT IN
DEBTS 20 PERCENT IN CASH

• MARKET PRICE:
• CLOSE ENDED SCHEME LISTED ON A
RECOGNISED STOCK EXCHANGE
• IF MARKET PRICE IS LOWER THAN NAV IT IS
SAID TO BE TRADING AT DISCOUNT
• IF MARKET PRICE IS HIGHER THAN NAV IT IS
SAID TO BE TRADING AT PREMIUM
• AN OPEN ENDED SCHME IS NOT LISTED AT
STOCK EXCHANGE SHOULD BE PRICED ON
REGULAR BASIS

• REPURCHASE AND SALE PRICE:
• RE-PURCHASE PRICE IS A PRICE WHICH MF
SCHEMES BUY BACK THE UNITS FROM
UNITHOLDERS, FOR INVESTORS IT IS SALE
PROCEEDS OR REDEMPTION
• SALE PRICE IS A PRICE AT WHICH MF
SCHEMES SELLS THE UNITS OF THE SCHEME
• FOR INVESTORS IT IS COST OF INVESTING IN
MF SCHEME

HOW TO CALCULATE NAV
• NO. OF OUTSTANDING SHARES 10 CRS.
• FACE VALUE OF SHARES RS.10/-
• INVESTMENT 160 CRS
• RECEIVABLES 5 CRS
• ACCRUED INCOME 2 CRS
• LIABILITIES 2.5 CRS
• ACCRUED EXPENSES 2.5 CRS
• NAV = 160 + 5 + 2 – 2.5 – 2.5
• 10
• RS. 16.2

9
VALUATION
AND
VALUATION
NORMS

VALUATIONS
• SEBI HAS LAID DOWN 2 BROAD
GUIDELINES SO THAT PURPOSE OF
INVESTORS PROTECTION MAY BE SERVED
• (i) VALUATION BE BASED ON “FAIR
VALUATION”. PRINCIPLE OF VALUATION
• (ii) FOR ALL SCHEMES AND ALL TYPES OF
FUNDS VALUATION PRINCIPLE FOR SAME
TYPE OF SECURITIES SHOULD BE KEPT
CONSTANT

VALUATION PRINCIPLES
• PRINCIPLE OF ALTERNATIVES:
• PRINCIPLE BASED ON ASSUMPTION THAT
INVESTORS BUY AND SELLERS SELL
OWNERSHIP OF FINANCIAL ASSETS AT THEIR
FREE WILL THERE IS NO COMPULTIONS ON
BOTH THE PARTIES, WE ASSUME THAT
ALTERNATIVE PRINCIPLE IS FOLLOWED AND
FAIR VALUE OF TRANSITION IS ESTABLISED

• PRINCIPLE OF FUTURE BENEFITS:
• THIS PRINCIPLE IMPLIES THAT INVESTORS
NOT ONLY INVEST TO GENRATE BENEFITS IN
PRESENT BUT ALSO IN FUTURE, THEY ARE
READY TO PAY ADDITIONAL MONEY TO
ACQUIRE SUCH INVESTMENTS WHICH
SHALL APPRECIATE IN FUTURE

• FAIR VALUE PRINCIPLE:
• FAIR VALUE NEEDS TO BE CONSIDERED
MOST CRUSIAL PRINCIPLE OF VALUATION
PRINCIPLE SUGGEST VALUES OF SECURITIES
SHOULD BE BASED ON COST, MARKET
PRICE OR SOME ACCEPTED PRINCIPLE FOR
VALUATION, FAIR VALUE OF A SECURITY
DEPENDING ON NATURE OF SECURITY
TRADING, NON-TRADING AND SO ON

VALUATION OF EQUITY INSTRUMENTS
• TRADING SECURITIES:
• TRADING SECURITIES ARE VALUED ON THE
BASIS OF “MARKED TO MARKET”
• IN THIS CASE CLOSING MARKET PRICE IS
OBTAINED AND SUCH PRICE IS MULTIPLIED
WITH CLOSING O/S UNITS TO GET MARKET
VALUE OF INVESTMENTS
• VALUATION DATE:
• THE DATE ON WHICH THE FUND
CALCULATES ITS NAV FOR ITS PORTFOLIO IS
KNOWN AS VALUATION DATE

• THINLY TRADED SECURITIES:
• CERTAIN SECURITIES WHICH ARE NOT
TRADED FREQUENTLY OR MAY BE TRADED
IN VERY SMALL VOLUME, SOMETIMES IT IS
DIFFICULT TO OBTAIN MARKET PRICE SUCH
SECURITIES ARE KNOWN AS THINLY TRADED
SECURITIES
• SEBI HAS DEFINED THINLY TRADED
SECURITES AS:
• TRADING VOLUME < 50000 SHARES OR
RS.500,000, SUSPENSION OF TRADING FOR
LESS THAN 60 DAYS

• NON-TRADED SECURITIES:
• WHEN A SECURITY IS NOT TRADED ON ANY
RECOGNISED SE FOR 60 DAYS PRIOR TO
VALUATION DATE IS CONSIDERED AS “NON
TRADED SECURITY”
• VALUATION SHOULD BE BASED ON VALUE
PER SHARE TAKEN AS AVERAGE OF NET
WORTH AND CAPITALISED VALUE WHICH
DISCOUNTED FOR PURPOSE OF LIQUIDITY

VALUATION OF DEBT SECURITIES
• TRADING SECURITIES:
• DEBT SECURITY TRADING ON A SE ACCEPTED
PRINCIPLE IS TO USE QUOTED MARKET PRICE
• IF A PRTICULAR DEBT SECURITY NOT TRADED
ON SE ON A PRTICULAR VALUATION DATE
THEN ANY SUCH PRICE PREVAILING ON
PREVIOUS VALUATION DATE MAY BE TAKEN
AS MARKET PRICE PROVIDED THAT SUCH
DATE IS NOT 30 DAYS PRIOR TO THE CURRENT
VALUATION OF DEBT

• THINLY TRADED SECURITY:
• AS PER SEBI GUIDELINES FOR MF DEBT
SECURITY IS TRADED ON ANY OF
RECOGNISED SE FOR LESS THAN RS. 5 CRS.
ON A PARTICULAR TRADING DAY
• NON-TRADED SECURITY:
• VALUATION OF NON-TRADED SECURITY MAY
BE UNDERTAKEN ON YIELD TO MATURITY
BASIS, TAKING CAPITALIZATION FACTOR
FOR TRADED SECURITY WHICH NEEDS TO BE
DISCOUNTED AT APPROPRIATE FACTOR

• GUIDELINES TO BE FOLLOWED IN CASE OF
NON-TRADED/THINLY TRADED SECURITES
FOR THE PURPOSE OF VALUATION DIVIDED
INTO 2 PARTS:
• (i) MONEY MARKET INSTRUMENTS AND
DEBT SECURITIES MATURITY FOR LESS THAN
182 DAYS
• (ii) NON-TRADED, NON GOVT DEBT
INSTRUMENTS MATURITY MORE THAN 182
DAYS

• NON-TRADED DEBT SECURITIES MATURING
BELOW 182 DAYS SHOULD BE TREATED AS
MMIs FOR THE PURPOSE OF VALUATIONS
• SUCH SECURITIES SHOULD BE VALUED AT
AMORTISED PURCHASE COST OF INVT PLUS
ACCRUED INTEREST TILL THE DATE OF
ACQUISITION & DIFFERNCE BETWEEN
REDEMPTION VALUE & PURCHASE PRICE
SPREAD OVER REMAINING MATURITY
PERIOD

VALUATION OF OTHER INSTRUMENTS
• GOVERNMENT SECURITIES:
• G-SEC ARE VALUED AT YIELD TO MATURITY
BASED ON PREVAILING MARKET RATE
• CONVERTIBLE DEBENTURES:
• CONVERTIBLE PORTION AND NON-
CONVERTIBLE PORTION IS VALUED IN
DIFFERENT MANNER
• DEBT COMPONENT IS VALUED ON SAME AS
DEBT INSTRUMENT
• EQUITY COMPONENT IS VALUE ON SAME
BASIS AS EQUITY INSTRUMENTS

VALUATION OF OTHER INSTRUMENTS
• VALUATION OF GOLD:
• VALUATION OF GOLD REQUIRED FOR
FUNDS/SCHEMES INVEST PRIMARILY IN
GOLD OR GOLD RELATED INSTRUMENTS
SUCH SCHEMES ARE KNOWN AS GETF
• PRICING/VALUATION OF GOLD BASED ON
PRICES FIXED BY LONDON BULLION MARKET
ASSOCIATION (LBMA) IN US$ PPER OUNCE
FOR GOLD HAVING PURITY OF 995
• IN CASE PURITY IS ABOVE 995 LBMA PRICES
MAY BE TAKEN A BASED PRICE AND
PREMIUM MAY BE ADDED FOR EXTRA

BOOKS OF ACCOUNTS
• AS PER REGULATION 50 OF SEBI ALL MFs SET UP IN
INDIA SHALL MAINTAIN PROPER BOOKS OF
ACCOUNTS, RECORDS AND DOCUMENTS
SHOWING DETAILS OF EACH SCHME SEPARATELY
• EVERY MF SHOULD DISCLOSE TRUE & FAIR VIEW
OF AFFAIRS OF THE FUND AS PER SEBI
REGULATION FOR INVESTOR PROTECTION
• ALL BOOKS OF A/Cs MUST BE PRESERVED FOR 8
YEARS BY MF EVEN IN A SITUATION WHERE
SCHEME HAS LAPSED
• AS PER REGULATION 50 AMC SHOULD INFORM
SEBI ABOUT PLACE OF BOOKS OF A/Cs &
RECORDS

INSPECTION OF BOOKS OF
ACCOUNTS BY SEBI
• AS PER REGULATION 61 SEBI CAN APPOINT ONE
OR MORE PERSONS, AS THEY FIND FIT AS AN
OFFICER ON SPECIAL DUTY FOR INSPECTING
BOOKS OF A/Cs OR RECORDS MAINTAINED BY MF
• OFFICER IS AUTHORISED TO UNDERSTAND &
EVALUATE AND SEEK FOR ANY INFORMATION ON
FOLLOWING:
• BOOKS OF A/Cs, DOCUMENTS & INFRASTRUCTURE,
SYSTMES & PROCEDURE, TRUSTEES/AMC
• PRIMARY OBJECTIVE OF INSPECTION IS TO ENSURE
REGULATIONS PRESCRIBED ARE COMPLIED WITH
OR NOT

ACCOUNTING YEAR
• ACCOUNTING YEAR OF A MF FOR ALL SCHEMES
SHALL END ON 31ST
MARCH EVERY YEAR
• ALL EXISTING SCHEMES SHALL HAVE OPENING
DATE OF FINANCIAL YEAR AS 1ST
APRIL & ALL
SCHEMES INTRODUCED IN THE YEAR SHALL HAVE
DATE OF ISSUE OF MF UNITS AS OPENING DATE
• IF SCHEME IS INTRODUCED IN BETWEEN
ACCOUNTING YEAR DISCLOSURE &
ACCOUNTING YEAR SHALL APPLY TO SCHEME
• IF A MF IS FLOATED OUTSIDE INDIA WITH
DIFFERENT ACCOUNTING YEAR CAN SHOW
VALUATION OF DIFFERENT DATE THAN 31ST
MARCH ONLY FOR INVESTORS OUTSIDE INDIA

ACCOUNTING POLICIES
• THE REALISED GAINS OR LOSSES ON SALE OF
REDEMPTION OF INVT. AS WELL AS UNREALISED
APPRECIATION OR DEPRECIATION SHALE BE
RECOGNISED IN ALL FINANCIAL STATEMENTS
• NON-TRADED INVESTMENTS SHALL BE VALUED IN
GOOD FAITH IN ACCORDANCE WITH NORMS
SPECIFIED
• FOR QUOTED SHARES THE DIVIDEND INCOME
EARNED BY SCHEME SHALL BE RECOGNISED NOT
ON THE DATE OF DIVIDEND IS DECLARED BUT ON
THE DATE THE SHARE IS QUOTED ON EX-DIVIDEND
BASIS

ACCOUNTING POLICIES
• IN RESPECT OF ALL INTEREST BEARING
INVESTMENTS INCOME SHALL BE ACCRUED ON A
DAY TO DAY BASIS AS IT IS EARNED, WHEN SUCH
INVT. ARE PURCHSAED INTEREST PAID FOR THE
PERIOD FROM THE LAST INTEREST DUE DATE UPTO
THE DATE OF PURCHASE SHALL NOT BE TREATED
AS COST OF PURCHASE BUT SHALL BE TREATED TO
INTEREST RECOVERABLE A/C
• IN DETERMINING THE HOLDING COST OF INVT. &
THE GAINS OR LOSS ON SALE OF INVESTMENTS THE
“AVERAGE COST” METHOD SHALL BE FOLLOWED
• TRANSACTION FOR PURCHASE OR SALE OF INVT.
SHALL BE RECOGNISED AS OF THE TRADE DATE
AND NOT AS OF THE SETTLEMENT DATE

ACCOUNTING POLICIES
• WHERE INCOME RECEIVABLE ON INVT. HAS BEEN
ACCRUED & HAS NOT BEEN RECEIVED FOR A
PERIOD OF 12 MONTHS BEYOND THE DUE DATE
PROVISION SHALL BE MADE BY DEBIT TO REVENEUE
A/C
• WHEN THE UNITS OF AN OPEN-ENDED SCHEMES
ARE SOLD THE DIFFERENCE BETWEEN THE SALE
PRICE AND FACE VALUE OF THE UNIT IF POSITIVE
CREDITED TO RESERVES AND IF NEGATIVE IS
DEBITED TO RESERVES, THE FACE VALUE BEING
CREDITED TO CAPITAL A/C
• THE COST OF INVT. ACQUIRED OR PURCHASE
SHALL INCLUDE BROKERAGE, STAMP CHARGES &
ANY CHARGE INCLUDED IN BROKERS BOUGTH
NOTE

ACCOUNTING STANDARDS
• ALL BASIC PRINCIPLES, STANDARDS & CONCEPTS
OF ACCOUNTING OF ANY COMMERCIAL VENTURE
IN INDIA ARE EQUALLY APPLICABLE TO MFs
• RECENTLY, FUNDAMENTAL CHANGES IN
ACCOUNTING OF MFs HAVE BEEN SUGGESTED TO
BRING ACCOUNINT OF MF AT PAR WITH
INTERNATIONAL STANDARD, COMMITTEE FORMED
PRESCRIBED DISCLOSURE IN 3 BROAD AREAS:
• 1. BALANCE SHEET
• 2. REVENUE ACCOUNT
• 3. NOTES TO ACCOUNT

SPECIAL ACCOUNTING AREAS
• DATE OF RECOGNITION:
• DATE OF RECOGNITION CAN BE DETERMINED IN
FOLLOWING CASES:
• TRADED SECURITES:
• IN CASE OF TRADED SECURITIES TRANSACTION OF
BUYING OR SELLING OF INVT. SHOULD BE ACCOUNTED
ON THE DATE OF TRADE & NOT ON SETTLEMENT
• IN CASE OF NON-TRADED INVT. TRANSACTION,
PURCHASE: ON SUCH DATE WHEN SCHEME IS LEGALLY
ENFORCEABLE & PAYMENT IS DUE TO COUNTER PART
• IN CASE OF SALE ON SUCH DATE WHEN UNDER A
SCHEME ONE IS LEGALLY ELIGIBLE TO COLLECT SALES
PROCEEDS

SPECIAL ACCOUNTING AREAS
• IN CASE OF TRADED SECURITES TRANSACTIONS OF
BUYING OR SELLING OF INVT. SHOULD BE ACCOUNTED
ON THE DATE OF TRADE AND NOT ON SETTLEMENT
• IN CASE OF NON-TRADED INVT. IN CASE OF PURHASE ON
SUCH DATE WHEN SCHEME IS LEGALLY ENFORCEABLE &
PAYMENT IS DUE TO COUNTER PARTY
• IN CASE OF SALE ON SUCH DATE WHEN UNDER A
SCHEME ONE IS LEGALLY ELIGIBLE TO COLLECT SALE
PROCEEDS
• IN CASE OF BONUS SHARES IT MUST BE ACCOUNTED ON
THE DATE WHEN THE ORIGINAL SHARE ON WHICH BONUS
IS DECLARED ARE TRADED IN SE AT EX-BONUS PRICE
• IN CASE OF RIGHTS ISSUE SIMILAR RULE IS APPLICABLE AS
IT IS IN CASE OF BONUS ISSUE

COST OF INVESTMENT
• THE COST OF INVESTMENT SHOULD INCLUDE:
• BROKERAGE
• STAMP DUTY
• LEGAL CHARGES
• OTHER INCIDENTAL EXPENSES
• IN CASE OF NON-TRADED DEBTS ANY END
DISCOUNT OFFERED SHOULD BE REDUECED FROM
TOTAL COST
• IN CASE OF INTEREST BEARING INVT. INCOME OF
INVT. ACCRUES ON DAILY BASIS SUCH INCOME
ARISING IS REVENUE IN NATURE IT SHOULD NOT BE
INCLUDED IN COST BUT ACCOUNTED WITH
“INTEREST RECOVERABLE ACCOUNT”

INITIAL ISSUE EXPENSES
• IN CASE OF MFs ACCOUNTING OF INITIAL ISSUE
EXPENSES HAS SIGNIFICANT IMPACT ON THE
PROCESS OF CALCULATION OF NAV OF A FUND
• SEBI REGULATION FOR INITIAL ISSUE EXPENSES
PROVIDE MAXIMUM LIMIT FOR ISSUE EXPENSES
CAN BE 6 PERCENT OF FUND RAISED
• ANY EXPENSES IN EXCESS OF PRESCRIBED LIMIT IS
TO BE BORNE BY AMC
• SCHEME CLASSIFIED AS LOAN SCHEME SUCH
EXPENSES SHOULD BE CHARGED AND
ACCOUNTED WITH SCHEMES
• SCHEME CLASSIFIED AS NON-LOAN SCHEME
EXPENSES SHOULD BE BORNE BY AMC

CARRYING VALUE OF INVESTMENT
• AS PER SEBI GUIDELINES ALL INVESTMENTS SHOULD
BE “MARKED TO MARKET”, THEY SHOULD BE
REFLECTED AT MARKET VALUE ON THE DATE OF
BALANCE SHEET, THERE IS POSSIBILITY OF REALISED
GAIN/LOSS & UNREALISED GAIN/LOSS
• IN CASE OF SALE OR REDEMPTION OF INVT.
RESULTING GAIN/LOSS SHOULD BE RECOGNISED &
ACCOUNTED AS PART OF DISTRIBUTABLE INCOME
OF MF
• IN CASE OF UNREALISED GAIN/LOSS I.E
APPRECIATION OR DEPRECIATION IN THE VALUE
OF INVT. MFs NEEDS TO MAKE PROVISION FOR
THEIR EXCLUSION FROM INCOME AVAILABLE FOR
DISTRIBUTION AS PROFIT

ELEVENTH SCHEDULE – SEBI
REGULATIONS (REGULATION 54, 56(2)
• ANNUAL REPORT (CONTAIN):
• REPORT OF BOTs ON THE OPERATIONS OF
VARIOUS SCHEMES & FUTURE OUTLOOK OF THE
FUND
• BALANCE SHEET & REVENUE ACCOUNT
• AUDITORS REPORT IN ACCORDANCE WITH
PARAGRAPH 5 OF THIS SCHEDULE
• BRIEF STATEMENT OF BOTs ON THE FOLLOWING
ASPECTS:
• LIABILITIES & RESPONSIBILITIES OF TRUSTEES, INVT.
OBJECTIVE OF THE SCHEME, BASIS OF INVT.
POLICY OF UNDERLYING SCHEME

ELEVENTH SCHEDULE – SEBI
REGULATIONS (REGULATION 54, 56(2)
• AUDITORS REPORT:
• ALL MFs SHALL BE REQUIRED TO GET THEIR A/C S
AUDITED THE AUDITORS REPORT SHALL FORM A
PART OF ANNUAL REPORT IT SHOULD BE
ACCOMPANY THE ABRIDGED B/S AND REVENUE
ACCOUNT
• THE AUDITOR SHALL STATE WHETHER HE HAS
OBTAINED ALL INFORMATION AND EXPLANATIONS
TO BEST OF HIS KNOWLEDGE AND BELIEF
• THE B/S & REVENUE A/C ARE IN AGREEMENT WITH
BOOKS OF A/CS OF THE FUND

11
FINANCIAL
STATEMENT OF
MUTUAL FUNDS

BALANCE SHEET
• IN CASE OF B/S OF MF THE FINANCIAL ASSETS &
LIABILITIES ARE DISCLOSED
• B/S OF MF SCHEME & B/S OF AMC IS ALSO
DISTINGUISHED FROM EACH OTHER
• B/S GIVE SCHMEWISE DETAILS OF ASSETS &
LIABILITIES ALL SUCH PARTICULARS ARE DISCLOSED
AS PER PRESCRIBED FORMAT IN
• (A) ANNEXURE 1 A (ASSET SIDE)
• (B) ANNEXURE 1 B (LIABILITY SIDE)
• B/S ALSO TO DISCLOSE THE PER UNIT NAV AT THE
END OF YEAR
• MAJOR ITEM IN B/S IS DISCLOSURE OF INVT. IN
TERMS OF VALUE & VOLUME

CONTENTS OF BALANCE SHEET
• ASSETS:
• (A) INVESTMENTS:
• EQUITY/PREFERNCE SHARES, PVT PLACEMENTS, BONDS,
DEBENTURES, G-SEC, CP, ETC
• (B) DEPOSITS: DEPOSIT WITH SCHEDULE BANKS, Cos,
INSTITUTIONS ETC.
• (C) OTHER CURRENT ASSETS: BAL WITH BANKS IN C/A,
CASH ON HAND, SUNDRY DEBTORS, CONTRACT FOR
SALE OF INVT. O/S INCOME, ADVANCE PAYEMENT,
EXCESS APPLICATION MONEY IN SHARES/BONDS
• (D) FIXED ASSETS: IN MF FIXED ASSET SHALL CONSTITUTE
A SMALL PORTION OF B/S IT WOULD BE SUFFICIENT TO
DISCLOSE DEPRECIATED COST OF FIXED ASSETS OR NET
BLOCK MAY BE DISCLOED

CONTENTS OF BALANCE SHEET
• LIABILITIES:
• (A) UNIT CAPITAL: INITIAL CAPITAL, UNIT
CAPITAL(INCLUDING NO. OF UNITS & CACE VALUE PER
UNIT)
• (B) RESERVES & SURPLUS: UNIT PREMIUM RESERVE,
GENERAL RESERVE, DIVIDEND EQUALIZATION RESERVE
• (C) LOANS: LOANS FROM RBI, LOAN FROM SETTLER,
LOAN FROM OTHER COMMERCIAL BANSK
• (D) CURRENET LIBILITIES & PROVISIONS: SUNDRY
CREDITORS, INTEREST PAYABLE ON LOANS, CONTRACT
FOR PURCHASE OF INVT., BANK OD, UNCLAIMED
DISTRIBUTION INCOME
• PROVISIONS: PROVISION FOR LOSS, DEPRECIATION,
DOUBTFUL DEPOSITS, O/S & ACCRUED INCOME,
PROVISION FOR GRATUITY, SWF, ETC.

REVENUE STATEMENT/ACCOUNT
• REVENUE A/C OF MFs IS PREPARED TO PROVIDE DETAILED
INFORMATION ABOUNT SCHEMEWISE PARTICUARS OF INCOME &
EXPENDITURE RESULTING INTO SURPLUS/DEFICIT OF MF
• THE REVENUE A/C OF MF SHOULD BE PREPARED AS PER ANNEXURE
2B OF SCHEDULE XI OF SEBI REGULATIONS 1996 THE REVENUE A/C
PROVIDE INCOME & EXPENSES OF EACH SCHME SEPARATELY
• IN CASE OF DISPOSAL OF INVT. PROFIT OR LOSS FROM INTER
SCHEME TRANSFER OF INVT SHOULD BE TREATED & ACCOUNTED
SEPARATELY
• REVENUE A/C SHOULD PROVIDE INFORMAION ABOUT
ACCOUNTING POLICY FOLLOWED IN SCHEME
• ABRIDGED REVENUE A/C SHOULD BE PREPARED TO SHOW
APPROPRIATION OF SURPLUS BY WAY OF DIVIDENDS TRANSFER TO
RESERVES ETC
• TOTAL INCOME & EXPENDITURE AS PERCENTAGE OF AVERAGE NET
ASSETS SHOULD BE COMPUTED & DISCLOSED IN REVENUE A/C

CONTENTS OF REVENUE ACCOUNT
• INCOME :
• DIVIDENDS, INTEREST, PROFIT OF SALE/REDEMPTION OF INVESTMENT,
PFORIT OF INTER-SCHME SALE/TRANSFER OF INVESTMENT OTHER
INCOME
• EXPENSES & LOSSES :
• PROVISION FOR DEPRECIATION IN VALUE OF INVESTMENT
• PROVISION FOR DOUBTFU ACCRUED INCOME
• PROVISION FOR DOUBTFUL DEPOSITS
• LOSS ON SALE OF REDEMPTION
• MANAGEMENT FEES, TRUSTSHIP FEES, STAFF COST, ADMINISTRAION &
OTHER EXPENSES
• AUDIT FEES, CUSTODIAN FEES, PUBLICITY EXPENSES ETC

DISCLOSURE REQUIREMENTS
• ALL PROVISIONS MADE BY MF DURING AN
ACCOUNTING YEAR INCLUDING PROVISIONS OF
DEPOSIT, DEBT & OTHER CURRENT ASSETS NEED TO BE
CLUBBED BUT CAN BE SHOWN AS AGGREGATE FIGURE
• SEPARATE DISCLOSURE NEEDED FOR :
• CUSTODIAN FEES
• REGISTRAION FEES
• NO DISTINCTION TO BE MADE BETWEEN SHORT TERM
CAPITAL GAIN & LONG TERM CAPITAL GAIN
• TOTAL INCOME & TOTAL EXPENDITURE SHOULD BE
CALCULATED ON WEEKLY BASIS AS PERCENTAGE OF
AVERAGE NET ASSETS AND DISCLOSED ACCORDINGLY

ADDITIONAL DISCLOSURE TO
FINANCIAL STATEMENT
• MANAGEMENT FEES PAID TO TOP MANAGEMENT
SHOULD BE SHOWN WITH DETAILED BREAK-UP AND
COMPUTATION OF THE SAME
• IF BROKERAGE, CUSTODIAN FEES OR ANY OTHER
PAYMENT FOR SERVICE IS PAID OR PAYABLE TO ANY
THIRD PARTY SHOULD BE DISCLOSED ACCORDINGLY AS
SEPARATE DISCLOSURE
• AGGREGATE VALUE OF PURCHASE OF INVT. AND SALE
OF INVT. AS PERCENTAGE OF AVERAGE NET ASSETS ON
WEEKLY BASIS SHOULD BE DISCLOSED

HISTORIC UNIT STATISTICS
• EVERY MF SCHEME NEEDS TO PREPARE THE SPECIAL
STATEMENT AS PER SCHEDULE 11 OF SEBI REGULATIONS
TO DISCLOSE PER UNIT STATISTICS FOR PAST 3 YEARS
• NET ASSETS VALUE PER UNIT
• GROSS INCOME PER UNIT
• AGGREGATE OF EXPENSES WRITTEN OFF, AMORTISED &
CHARGED PER UNIT
• NET INCOME PER UNIT
• UNREALISED APPRECIATION/DEPRECIATION IN VALUE
OF INVT. PER UNIT
• IF THE UNITS ARE TRADED OR REPURCHASED THE
HIGHEST & LOWEST PRICES PER UNIT DURING THE YEAR
• PER UNIT RATIO OF EXPENSES TO AVERAGE NET ASSETS
BY PERCENTAGE

12
TAX IMPLICATIONS
IN
MUTUAL FUNDS

TAX IMPLICATIONS
• DEPENDING ON NATURE & CHARACTERISTICS OF MF
SCHEME AMC & U/Hs IS UNDER OBLIGATION TO PAY
TAXES AT PRESCRIBED RATE & TIME WITH SURCHARGE &
CESS IF ANY
• TAX IMPLICATION FOR AMC:
• DIVIDEND DISTRIBUTION TAX
• CAPITAL GAINS
• SECURITIES TRANSACTION TAX (STT)
• WEALTH TAX
• TAX IMPLICATION FOR UNIT HOLDER:
• INCOME TAX
• STT
• GIFT TAX

TAXATION FOR UNIT HOLDERS
• CAPITAL GAIN TAX:
• INVESTORS HAVE TO PAY CAPITAL GAIN TAX ONLY
WHEN THEY REALISE CAPITAL GAIN I.E. PPROFIT
ON SALE OF ANY MF UNIT
• CAPITAL GAIN CAN BE EITHER LONG TERM OR
SHORT TERM IN NATURE
• GAINS ARISING ON TRANSFER OF UNITS (BY
SLAE/REDEMPTION/SWITCH) HELD FOR A PERIOD
IN EXCESS OF 12 MONTHS ARE CLASSIFIED AS
LONG TERM IN ANY OTHER CASE THE GAINS ARE
CLASSIFIED AS SHORT TERM CAPITAL GAIN

LONG TERM CAPITAL GAINS
• IN CASE OF EQUITY ORIENTED FUND:
• UNDER SECTION 10(38) LTCG ARISING ON SALE
/REDEMPTION/SWITCH ARE EXEMPT FROM
INCOME TAX IN THE HANDS OF UNITHOLDERS,
PROVIDED SUCH TRANSACTIONS ARE ENTERED
INTO A RECOGNISED SE OR SUCH UNITS ARE SOLD
TO THE MF ARE CHARGABLE TO STT
• EQUITY ORIENTED FUND MEANS WHERE INVESTIBLE
FUNDS ARE INVESTED BY MF IN EQUITY SHARES IN
DOMESTIC COMPANIES TO THE EXTEND OF 65
PERCENT OF THE TOTAL PROCEEDS

• IN CASE OF FUNDS OTHER THAN EQUITY ORIENTED
FUND:
• FOR INDIVIDUALS & HUF:
• ACCORDING TO SECTION 112 OF ACT LTCG
ARISING ON SALE/REDEMPTION/SWICH OF UNITS
OF FUNDS OTHER THAN EQUITY ARE TAXABLE AT
10 PERCENT WITHOUT INDEXATION& 20 PER CENT
WITH INDEXATION PLUS APPLICTION SURCHARGE
10 PERCENT AND EDUCATION CESS 3 PERCENT
• U/H HAS A OPTION TO OFFER THE LTCG AT
CONCESSIONAL RAGE OF 10 PERCENT PLUS
SURCHARGE & EDUCATION CESS WITHOUT
CLAIMING ANY INDEXATION BENEFTI

FUND:
• FOR PARTERSHIP FIRMS/NON RESIDENTS
INDIAN/FOREIGN COMPANIES:
• ACCORDING TO SECTION 112 OF ACT LTCG
ARISING ON SALE/REDEMPTION/SWICH OF UNITS
OF FUNDS OTHER THAN EQUITY ARE TAXABLE AT
20 PERCENT PLUS APPLICABLE SURCHARGE &
EDUCATION CESS AFTER CLAIMING INDEXATION
BENEFIT
• U/H HAS A OPTION TO OFFER THE LTCG AT
CONCESSIONAL RATE OF 10 PERCENT PLUS
SURCHARGE & EDUCATION CESS WITHOUT
CLAIMING ANY INDEXATION BENEFIT

FUND:
• FOR NRIs UNDER SECTION 115E OF ACT INCOME
UNDER LTCG IS CHARGABLE AT 20 PERCENT PLUS
APPLICABLE SURCHARGE & CESS
• FOR OVERSEAS FINANCIAL ORGANISAION
INCLUDING OCBs AND FIIs:
• LTCG ARISING ON TRANSFER OF UNITS PRCHASED
IN FOREIGN CURRENCY ARE TAXABLE AT 10
PERCENT PLUS APPLICABLE SURCHARGE & CESS
SUCH GAINS CALCULATED WITHOUT INDEXATION
BENEFIT

SHORT TERM CAPITAL GAINS
• EQUITY ORIENTED FUNDS:
• SECTION 111A PROVIDE THAT STCG ARISING ON
REDEMPTION OF UNITS OF EUQITY ORIENTED
FUNDS ON WHICH STT HAS BEEN PAID ARE
TAXABLE AT THE RATE OF 15 PERCENT PLUS
• FUNDS OTHER THAN EQUITY ORIENTED FUNDS:
• STCG REALISED ON TRANSFER OF UNITS ARE
TAXABLE AT NORMAL RATES PLUS APPLICABLE
SURCHARGE & EDUCATION CESS FOR DIFFERENT
UNIT HOLDERS
• RIs & HUF/PARTNERSHIP FIRMS/INDIAN COs/NRIs – 30
PERCENT PLUS SURCHARGE & CESS
• FOREIGN COs 40 PERCENT – OVERSEAS FINANCIAL
ORGANISATION/FIIs 30 PERCENT

TAX DUDUCTED AT SOURCE
• NO TAX SHALL BE DEDUCTED AT SOURCE IN
RESPECT OF ANY INCOME CREDIT OR PAID IN
RESPECT OF UNITS OF A FUND AS PER PROVISIONS
OF SECTION 10 (35) SECTION 194K & SECTION
196A
• UNDER SECTION 195 OF ACT TAX SHALL BE
DEDUCTED AT SOURCE FOR CAPITAL GAINS AS
UNDER:
• IN CASE OF NON-RESIDENT OTHER THAN A CO.:
• LTCG OTHER THAN EQUITY FUNDS – 22.66 PERCENT
PLUS APPLICABLE SURCHARGE & CESS
• STCG OTHER THAN EQUITY 33.99 PECENT PLUE

TAX DUDUCTED AT SOURCE
• IN CASE OF FOREIGN COMPANY:
• LTCG OTHER THAN EQUITY FUNDS – 11.33
PERCENT PLUS APPLICABLE SURCHARGE & CESS
• STCG OTHER THAN EQUITY 33.99 PERCENT PLUS

SECTION 80 C DEDUCTION
• SECTION 80 C OF IT ACT ALLOWS CERTAIN
INVESTMENTS & EXPENDITURE TO BE TAX-EXEMPT
THE TOTAL LIMIT UNDER THIS SECTION IS
RS.100,000/- WHICH CAN BE ANY COMBINATION
AS BELOW:
• CONTRIBUTION TO PF OR PPF
• PAYMENT TO LIC
• INVESTMENT IN PENSION PLANS
• INVESTMENT IN ELSS OF MFs

SECURITIES TRANSACTION TAX (STT)
• THE STT SHALL BE COLLECTED BY THE MFs AT
SOURCE AS PER CHAPTER VII OF FINANCE ACT
2004
• STT IS NOT APPLICABLE IN CASE OF NON EQUITY
ORIENTED MF SHCEMES
• STT TO BE DEDUCTED IN EQUITY ORIENTED
SCHMES IS 0.001 PERCENT
• WEALTH TAX:
• UNITS IN THE FUND ARE NOT TREATED AS ASSETS
AS DEFINED IN SECTION E(ea) OF WEALTHE TAX
ACT 1957 HENCE THEY WOULD NOT BE LIABLE TO
WEALTH TAX

DIVIDEND DISTRIBUTION TAX (DTT)
• UNDER PROVISION OF SECTION 115R OF ACT
ADDITIONAL INCOME TAX IS PAYABLE AT DIFFERENT
RATES ON INCOME DISTRIBUTED TO DIFFERENT CLASS
OF UNIT HOLDERS
• NO DDT IS PAYABLE ON INCOME DISTRIBUTED BY
OPEN ENDED EQUITY ORIENTED FUNDS
• MFs WHICH ARE MM/LIQUID FUND ARE REQUIRED TO
PAY DDT AT 25 PERCENT (EXCLUDING SURCHARGE @
10 PERCENT EDUCATION CESS 2 PERCENT &
SECONDARY & HIGHER EDUCATION CESS @
1PERCENT)
• MFs OTHER THAN MMFs REQUIRED TO PAY DDT OF
12.5 PERCENT (EXCLUDING SURCHARGE @ 10
PERCENT EDUCATION CESS 2 PERCENT & SECONDARY
& HIGHER EDUCATION CESS @ 1PERCENT)

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