Chapter 1
• 1. The Concept and Role of Mutual Funds
• The concept of a Mutual Fund;Fund Advantages of Mutual Fund
investing- Portfolio Diversification, Professional
Management, Reduction of Risk, Transaction Costs and
Taxes, Liquidity and Convenience
• History in India - Size of Industry, Growth Trends, UTI (its
role in the MF sector, unique structure); MFs' Place in
Financial Markets
• Types of Funds
• Open-end Funds/Closed-end Funds/Fixed Term Plans, Load
Funds/No Load Funds, Tax Exempt/Non Tax Exempt Funds
• Money Market Funds, Equity Funds, Debt Funds,
Commodity Funds, Real Estate Funds-
CONCEPT AND ROLE OF
MUTUAL FUND
WHAT IS MUTUAL FUND?
• COMMON POOL OF MONEY
• JOINT OR “MUTUAL” OWNERSHIP
• HENCE…LIKE SHARES OF THE JOINT
STOCK COMPANY
• UNITS ARE THE REPRESENTATION OF
OWNERSHIP
• “Not a company which manages
individual portfolios”
ADVANTAGES OF MUTUAL FUNDS
• PORTFOLIO DIVERSIFICATION
• PROFESSIONAL MANAGEMENT
• REDUCTION / DIVERSIFICATION OF
RISK
• REDUCTION OF TRANSACTION
COSTS
• LIQUIDITY
• CONVENIANCE AND FLEXIBILITY
DISADVANTAGES OF INVESTING
THROUGH MF
• NO CONTROL OVER COST
• NO TAILOR-MADE PORTFOLIO
• MANAGING A PORTFOLIO OF FUND
HISTORY OF MF IN INDIA
• MF INDUSTRY STARTED IN INDIA IN
1963 WITH FORMATION OF UTI
• DIFFERENT PAHSES :
•PHASE -1(UTI)
•PHASE-2 (ENTRY OF PUBLIC SECTOR MFs)
•PAHSE-3 (ENTRY OF PRIVATE MFs)
•PHASE-4 (UNDER SEBI REGULATION)
PHASE-1
• ESTABLISHMENT OF UTI IN 1963
• LAUNCH OF FIRST SCHEME US-64
• FOLLOWED BY ULIP IN 1971,
CGGF(1986), MASTERSHARE(1987)
• UTI THE ONLY PLAYER IN THE
MARKET WITH MONOPOLY POWER
• HUGE MOBILIZATION OF FUNDS
PHASE-2
• ESTABLISHMENT OF SBI-MF---THE FIRST
NON-UTI MF
• FOLLOWED BY CANBANK-MF, LIC-MF,BOI-
MF
• CHANGE IN THE MIND SET OF THE
INVESTORS
• UTI STILL THE UNDISPUTED LEADER OF
THE MARKET
PHASE-3
• ENTRY OF THE PRIVATE SECTOR FUND IN
1993
• JV OF FOREIGN FUND MANANGEMENT
COMPANIES WITH INDIAN PROMOTERS
• MORE COMPETITIVE PRODUCTTS &
INNOVATION, INVESTMENT MANAGEMENT
TECHNIQUES, INVESTORS SERVICING
TECHNIQUES
• INVESTORS STARTED BECOME SELECTIVE
PHASE-4
• SEBI- THE REGULATORY AUTHORITY
• UTI CAME UNDER SEBI REGULATION
VOLUNTARILY
• GOVT.’S STEPS FOR INVESTORS’
PROTECTION
TYPES OF FUNDS
• CLOSE END/ OPEN END
• LOAD / NO-LOAD
• TAX EXEMPT / NON-TAX EXEMPT
• OPEN END FUND:
• UNITS AVAILABLE FOR SALE AND
REPURCHASE AT ALL TIMES
• INVESTORS CAN BUY OR REDEEM ON
NAV
• Ex: ETSP”.
• UNIT CAPITAL - VARIABLE
• CLOSE END FUND:
• DON’T ALLOW INVESTORS TO BUY /
REDEEM UNITS DIRECTLY FROM
FUNDS
• GET LISTED ON STOCK EXCHANGE TO
PROVIDE LIQUIDITY. EX: MEP
• “Units may be traded at a discount or
premium to NAV based on investor’s
perception on future performance and
market factors”
• LOAD FUND:
• LOAD CHARGE TO COVER THE EXPENSES
• ENTRY/FRONT LOAD AND EXIT/ BACK LOAD
• DEFFERED LOAD - CHARGED OVER A PERIOD
OF TIME
• EXIT LOAD PREFFERED OVER ENTRY LOAD FOR
BENEFIT OF COMPOUNDING
• CONTINGENT DEFFERED SALES CHARGE- EXIT
LOAD CHARGED DEPENDING ON THE PERIOD.
EX:BOND FUND
• EVEN CLOSE END FUNDS MAY HAVE LOADS
• NO LOAD FUND:
• THERE IS NO LOAD - NO
SALES EXPENSE CHARGE
• NAV CALCULATED AFTER
ACCOUNTING FOR OTHER
EXPENSES
MUTUAL FUND TYPES
• BY NATURE OF INVESTMENTS
• EQUITY, BOND, MONEY MARKET
FUNDS
• BY INVESTMENT OBJECTIVE
• INCOME, GROWTH, VALUE FUNDS
• BY RISK PROFILE
• HIGH, LOW, MODERATE RISK FUNDS
MONEY MARKET FUND
• LOWEST RISK
• INVESTMENT IN THE SECURITY OF
LESS THAN ONE YEAR SECURITY
• INVESTMENT IN TREASURY BILLS, CD,
COM. PAPERS, CALL MONEY
• STRENGTH: LIQUIDITY AND SAFETY
OF PRINCIPAL
GILT FUND
• LOW RISK BUT HIGHER THAN THAT
OF MMF
• MEDIUM TO LONG TERM MATURITY
(MORE THAN 1 YEAR)
• LITTLE DEFAULT RISK, HIGH
INTEREST RATE RISK
• IT’S PRICES FALLS WHEN INTEREST
RATES INCREASE AND VICE VERSA
DEBT / INCOME FUND
• RISK HIGHER THAN G-SEC FUND
• MORE EMPHASIS ON INCOME
DISTRIBUTION THAN CAPITAL
APPRECIATION
• TYPES
• DIVERSIFIED
• FOCUSED
• HIGH YIELD (Investment in lower rate)
• ASSURED RETURN
TYPES OF EQUITY FUNDS
• AGGRESSIVE GROWTH FUNDS:
Investment in less researched or
speculative/non-blue chip stocks
• GROWTH FUNDS: Investment in stocks
with above average growth prospects
over 3-5 [Link]:Tech Stock
• SPECIALITY FUNDS: Sector, Offshore,
Small-cap equity, Option income funds
• DIVERSIFIED EQUITY FUNDS: ELSS.
Ex: ETSP
• EQUITY INDEX FUNDS
• VALUE FUNDS: Invest in fundamentally
sound companies with low P/E ratio.
• EQUITY INCOME FUND: Invest in
sectors where low fluctuation in stock
price and high dividend is expected.
TYPES OF HYBRID FUNDS
• BALANCED FUNDS: More or less equal
proportion
• GROWTH -INCOME FUNDS: Mix between good
dividend paying records and with potential of
capital appreciation.
• ASSET ALLOCATION FUNDS:Asset allocation
between equity,debt or money market and asset
allocation policy may be pre-determined or
flexible.
OTHER FUNDS
• COMODITY FUNDS
• REAL ESTATE FUNDS
