Mutual fund industry and structure :

Mutual fund industry and structure In March2010, the Indian mutual fund industry has 40 players.
The number of public sector players has reduced from 11 to 5. The public sector has gradually
receded into the background, passing on a large chunk of market share to private sector players.

The Indian mutual fund industry follows structure :

Fund Sponsor Trustees Asset Management Company Custodian Agent The Indian mutual fund
industry follows structure

Fund Sponsor :
Fund Sponsor Any person or corporate body that establishes the Fund and registers it with SEBI.
SEBI will grant a permission to start a mutual fund only to a person of integrity, with significant
experience in the financial sector and a certain minimum net worth

Trust and Trustees :

Trust and Trustees Once SEBI is satisfied with the credentials and eligibility of the proposed
Sponsors, the Sponsors then establish a Trust under the Indian Trust Act 1882. Trustees are the
individuals authorized to act on behalf of the Trust. Contracts are entered into in the name of the
Trustees. Once the Trust is created, it is registered with SEBI, after which point, this Trust is known
as the mutual fund.

Asset Management Company :

Asset Management Company Acts as an invest manager of the Trust under the Board Supervision
and direction of the Trustees. Has to be approved and registered with SEBI. Will float and manage
the different investment schemes in the name of Trust and in accordance with SEBI regulations.
Acts in interest of the unit-holders and reports to the trustees. At least 50% of directors on the board
are independent of the sponsor or the trustees.

Transfer Agents :
Transfer Agents Registrar and Transfer Agents (RTAs) maintain the investor’s (unit holder’s)
records, reducing the burden on the AMCs.

Custodian :
Custodian Has the responsibility of physical handling and safe keeping of the securities. Should be
independent of the sponsors and registered with SEBI.
What is Mutual Fund? :
What is Mutual Fund? Mutual fund is a investment tool that allows to invest in the equities, bonds
and other securities It pools the money of several investors and invests this in stocks, bonds, money
market instruments and other types of securities. owner of a mutual fund unit gets a proportional
share of the fund’s gains, losses, income and expenses.

Mutual Fund Operation Flow Chart :

Mutual Fund Operation Flow Chart Pool Their money with Invest in Generates Passed back to

Classification :
Classification

Open-end Vs. Closed-end Funds :

Open-end Vs. Closed-end Funds Open-end Fund Available for sale and repurchase at all times
based on the net asset value (NAV) per unit. Unit capital of the fund is not fixed but variable. Fund
size and its total investment go up if more new subscriptions come in than redemptions and vice-
versa.

Open-end Vs. Closed-end Funds :

Open-end Vs. Closed-end Funds Closed-end Fund One time sale of fixed number of units. Investors
are not allowed to buy or redeem the units directly from the funds. Some funds offer repurchase
after a fixed period. Listed on stock exchange and investors can buy or sell units through the
exchange.

Mutual Fund Types :

Mutual Fund Types Money Market Funds/Cash Funds Invest in securities of short term nature I.e.
less than one year maturity. Invest in Treasury bills issued by government, Certificates of deposit
issued by banks, Commercial Paper issued companies and inter-bank call money. Aim to provide
easy liquidity, preservation of capital and moderate income. Gilt Funds Invest in Gilts which are
government securities with medium to long term maturities, typically over one year. Gilt funds
invest in government paper called dated securities. Virtually zero risk of default as it is backed by
the Government. It is most sensitive to market interest rates. The price falls when the interest rates
goes up and vice-versa.

Debt Funds :
Debt Funds Debt Funds/Income Funds Invest in debt instruments issued not only by government,
but also by private companies, banks and financial institutions and other entities such as
infrastructure companies/utilities. Target low risk and stable income for the investor. Have higher
price fluctuation as compared to money market funds due to interest rate fluctuation. Have a higher
risk of default by borrowers as compared to Gilt funds. Debt funds can be categorized further based
on their risk profiles. Carry both credit risk and interest rate risks.

Real asset funds :

Real asset funds These funds invest in physical assets such as gold, platinum, silver, oil,
commodities and real estate. Gold Exchange Traded Funds (ETFs) and Real Estate Investment
Trusts (REITs) fall within the category of real asset funds.

Equity Funds :
Equity Funds Equity Funds: Invest a major portion of their corpus in equity shares issued by
companies, acquired directly in initial public offering or through secondary market and keep a part
in cash to take care of redemptions. Risk is higher than debt funds but offer very high growth
potential for the capital. Equity funds can be further categorized based on their investment strategy.
Equity funds must have a long-term objective.

Hybrid Funds :
Hybrid Funds Balanced Funds: Has a portfolio comprising of debt instruments, convertible
securities, preference and equity shares. Almost equal proportion of debt/money market securities
and equities. Normally funds maintain a Equity-Debt ratio of 55:45 or 60:40. Objective is to gain
income, moderate capital appreciation and preservation of capital. Ideal for investors with a
conservative and long-term orientation.

Investment Philosophy :
Investment Philosophy Diversified Equity Funds Sector Funds Index Funds Exchange Traded
Funds (ETFs) Fund of Funds (FOF) Fixed Maturity Plan (FMP)

Geographic Regions :
Geographic Regions Country or Region Funds These funds invest in securities (equity and/or debt)
of a specific country or region with an underlying belief that the chosen country or region is
expected to deliver superior performance,which in turn will be favorable for the securities of that
country.

Geographic Regions :
Geographic Regions Offshore Funds These funds mobilise money from investors for the purpose of
investment within as well as outside their home country.
 1. Benefits of Investing Through Mutual Funds

Professional Money Management :

Professional Money Management Fund managers are responsible for implementing a consistent
investment strategy . Fund managers monitor market and economic trends and analyze securities

Diversification :
Diversification Diversification is one of the best ways to reduce risk. Mutual funds offer investors
an opportunity to diversify across assets.

Liquidity :
Liquidity Investors can sell their mutual fund units on any business day. Receive the current market
value on their investments within a short time period (normally three- to five-days).

Affordability :
Affordability The minimum initial investment for a mutual fund is fairly low for most funds (as low
as Rs500 for some schemes.

Flexibility and variety :

Flexibility and variety Investors can pick up the scheme depending upon the risk /return profile.

Regulation :
Regulation All the MF are registered with the SEBI. Function within the strict regulation designed
to protect the interest of the investors

▪ Options Available to the Investor :

Options Available to the Investor

Mutual Funds Vs. Other Investments :

Mutual Funds Vs. Other Investments

Mutual Funds Vs. Other Investments :

Mutual Funds Vs. Other Investments
Mutual Funds Vs. Other Investments :
Mutual Funds Vs. Other Investments

Myths about Mutual Funds :

Myths about Mutual Funds 1. Mutual Funds invest only in shares. 2. Mutual Funds are prone to
very high risks/actively traded. 3. Mutual Funds are very new in the financial market. 4. Mutual
Funds are not reliable and people rarely invest in them. 5. The good thing about Mutual Funds is
that you don’t have to pay attention to them.

Facts about Mutual Funds :

Facts about Mutual Funds 1. Equity Instruments like shares form only a part of the securities held
by mutual funds. Mutual funds also invest in debt securities which are relatively much safer. 2. The
biggest advantage of Mutual Funds is their ability to diversify the risk. 3. Mutual Funds are their in
India since 1964. Mutual Funds market is very evolved in U.S.A and is there for the last 60 years. 4.
Mutual Funds are the best solution for people who want to manage risks and get good returns.

Facts about Mutual Funds :

Facts about Mutual Funds 5. The truth is as an investor you should always pay attention to your
mutual funds and continuously monitor them. There are various funds to suit investor needs, both as
a long term investment vehicle or as a very short term cash management vehicle.

Path to knowledge & Wealth creation fromMutual Funds :

Path to knowledge & Wealth creation fromMutual Funds

Invest in the mutual fund, not its NAV :

Invest in the mutual fund, not its NAV when an investor invests in a mutual fund, he invests at its
existing NAV. The investor buys the units at a price (i.e. NAV), the calculation of which is based on
the current market price of all the assets that the mutual fund owns. In case of the stock market
investing however, the stock price of a company is usually different from its intrinsic worth The
stock price could be higher (premium) or lower (discount) as compared to the book value of the
company. The reason for such a ‘mis-pricing’ could be that investors evaluate the company’s future
profitability and suitably pay a higher or lower price as compared to its book value.

there is no correlation between the NAV and the performance of the mutual fund. This makes
an investment decision based on the NAV potentially misguiding.
 ▪ As an investor, you need to consider factors such :
As an investor, you need to consider factors such own risk profile the fund house’s management
style the mutual fund’s performance.

own risk profile :

own risk profile some equity funds adhere to the growth style of investment (aggressively managed
funds); while others follow the value style of investment (conservatively managed funds). So, it is
important for investors to select a fund that takes on risk in line with their own risk appetite.

Fund management style :

Fund management style individualistic style team-based investment

Mutual fund performance :

Mutual fund performance It is imperative for investors to evaluate a mutual fund on parameters
related to risk like Standard Deviation and Sharpe Ratio as also its NAV appreciation. The best deal
for an investor will come from a mutual fund that has higher NAV appreciation and Sharpe Ratio
and lower Standard Deviation

Past performance is not everything :

Past performance is not everything SEBI has made it mandatory for fund houses to state this
disclaimer explicitly, whenever they mention the past performance of a scheme. Despite these
disclaimers, investors do continue to get lured by the catchy advertisement which boasts about the
scheme’s past performance.

Past performance is not everything :

Past performance is not everything there are certain critical points that the past performance
numbers in isolation do not tell you risk the investor has been exposed to Before making any
investment, it must be evaluated based on the risk-return criterion; evaluating the investment option
across any one of the two i.e. risk or return on a stand-alone basis will not provide the necessary
assessment

Past performance is not everything :

Past performance is not everything It does not take into consideration the performance of its peers.
You should compare an investment (be it a mutual fund, fixed deposit, unit-linked insurance plan–
ULIP, among others) with its comparable peer group while assessing whether or not you should
invest in it.
Past performance is not everything :
Past performance is not everything Past performance fails to highlight the investment processes and
approach.It does not tell you whether the past performance is the result of: i) good fortune/luck ii) a
star fund manager iii) a team-based investment approach past performance is no guarantee of future
performance

Don’t time your mutual fund investments - Take a SIP :

Don’t time your mutual fund investments - Take a SIP We all want to buy at the lows and sell at the
highs. And yes, ideally one should enter the market when it is at lower levels and exit when it is at
higher levels. But, to do so is almost impossible. No one can predict where the markets are heading
tomorrow.

Don’t time your mutual fund investments - Take a SIP :

Don’t time your mutual fund investments - Take a SIP you should invest regularly for the purpose
of meeting your long-term investment objectives. An effective and a hassle-free way of investing
regularly is through the SIP (Systematic Investment Plan) route. With SIPs, you don’t have to worry
about timing the market since you are investing a fixed amount at regular intervals (like a month or
quarter, for instance).

Reforms in the year 2009 :

Reforms in the year 2009 SEBI ordered mutual funds not to disclose the indicative portfolio or
indicative yield of their newly launched Fixed Maturity Plans (FMPs) Abolition of entry load SEBI
also stepped in to provide mutual fund investors transparency, by making distributors disclose
commissions (upfront and trail) to the investor.

Reforms in the year 2009 :

Reforms in the year 2009 Online mutual fund trading platform was launched by the exchanges
(BSE and NSE) SEBI allowed mutual fund investors to change their mutual fund distributors
without obtaining a No Objection Certificate (NOC) from their earlier distributor,

Year 2010 for the Mutual Fund Industry :

Year 2010 for the Mutual Fund Industry The year 2010, we believe, would continue to bring in
reforms in the mutual fund industry, making every initiative pro-investor. Also, many new players
are likely to enter the mutual fund space, thus leading to an increase in the product offering to
mutual fund investors. The potential for growth will come from inherent strengths and sustained
interest by foreign and domestic funds as well as the common investor.