Mutual Funds

Mayank Vohra
Vishwesh Singbal
Goa Institute of
Manangement
Mutual Fund
A mutual fund is a


professionally managed
type of collective
investment scheme that
pools money from many
investors and invests it in
stocks, bonds, short-term
money market instruments,
and/or other securities
Mutual Fund flow
cycle

Source: AMFI
Mutual Fund Basic
Terminology
An Asset Management Company is
the fund house or the company that
manages the money.
The Mutual fund is a trust

registered under the Indian Trust

Act. It is initiated by a sponsor. A
sponsor is a person who acts alone or
with a corporate to establish a mutual
fund. The sponsor then appoints an
AMC to manage the investment,
marketing, accounting and other
functions pertaining to the fund.

Functional Entities in MF
Operations
Mutual Fund Basic
Terminology
• NAV - The Net Asset Value is the price
of a unit of a fund. When a fund
comes out with an NFO, it is priced Rs
10. Later, depending on the value of
the investments, this price could rise
or fall


– Mutual funds only calculate their NAVs

once per trading day, at the close of
the trading session.
• Portfolio -This is the term given to all
the investments made by the fund as
well as the amount held in cash.
• Load - This is a fee that is charged
when you buy or sell the units of a
fund.
– The load is a percentage of the NAV.
Mutual Fund Basic
Terminology
• Corpus - The total amount of money
invested in the fund is called the
corpus
• AUM - Assets Under Management is
the total value of all the
investments currently being
managed by the fund.
Let's say the corpus is Rs 12,000 but,

due to a rise in the price of the shares

it has invested in, the value of the
units has increased. So the Rs 12,000
invested is now worth Rs 15,000. This
figure is referred to as AUM.
• NFO - A New Fund Offering is the
 Mutual Fund Basic
Terminology
• Public Offering Price (POP) - The
public offering price (POP) is the price
at which shares are sold to the public.
For funds that don't charge a sales
commission (or "load"), the POP is
simply equal to the Net Asset Value
(NAV). For a load fund, the POP is equal
to the NAV plus the sales charge. As
with the NAV, the POP will typically
change on a day to day basis.
Mutual Fund Family - A mutual fund
family is a group of mutual funds that
is managed by the same company. It is
usually easy to switch money between
mutual funds that are part of the same
family.
How to invest in a mutual
fund
Advantages of Mutual
Funds
• Professional Management
• Diversification
• Convenient Administration
• Lower Transaction costs
• Transparency
• Liquidity
• Mobilizes savings into the
market

Basis for Classification
Different type of
Funds
• Closed-end funds: A closed-end
mutual fund has a set number of
shares issued to the public through
an initial public offering.
• Open-end funds: Open end funds
are operated by a mutual fund
house which raises money from
shareholders and invests in a group
of assets
• Large cap funds: Large cap funds
are those mutual funds, which seek
capital appreciation by investing
primarily in stocks of large blue
chip companies
Different type of
Funds
• Mid-cap funds: Mid cap funds are
those mutual funds, which invest in
small / medium sized companies
• Equity funds:Equity mutual funds are
also known as stock mutual funds.
Equity mutual funds invest pooled
amounts of money in the stocks of
public companies. Eg- SBI Magnum,
Fraklin India Prima
• Bond Funds: A mutual fund that
invests in several different types of
medium and long-term government
securities in addition to top quality
corporate debt. Eg – UTI Liquid Cash
Plan, HDFC Cash Managemnt Fund,
Birla Cash Plus
Different type of
Funds
• Growth funds: Growth funds are
those mutual funds that aim to
achieve capital appreciation by
investing in growth stocks. Eg –
Reliance Growth Funds
• Balanced funds or Hybrid Funds: It
is a type of mutual fund that buys a
combination of common stock,
preferred stock, bonds, and short-
term bonds – SBI Magnum balanced
Fund, Tata Balanced Fund
• Value funds: Value funds are those
mutual funds that tend to focus on
safety rather than growth, and often
choose investments providing
Different type of
Funds
• Gilt Funds: A mutual fund that invests
in several different types of medium
and long-term government securities
in addition to top quality corporate
debt. Gilts originated in Britain. Eg.
ICICI Prudential gilt.
• Aggressive Growth funds: These
funds invest in the securities with
high risk and high return.
• Enhanced index: This is an index fund
which has been modified by either
adding value or reducing volatility
through selective stock-picking.
• Exchange Traded Funds(ETFs):
These represent a basket of securities
Different type of
Funds
• Money market funds: A money
market fund is a mutual fund that
invests solely in money market
instruments. Money market
instruments are forms of debt that
mature in less than one year and
are very liquid.
• International mutual funds:
International mutual funds are
those funds that invest in non-
domestic securities markets
throughout the world.
• Regional mutual funds: Regional
mutual fund is a mutual fund that
confines itself to investments in
Different type of
Funds
• Sector funds: Sector mutual funds are
those mutual funds that restrict their
investments to a particular segment
or sector of the economy.
• Index funds: An index fund is a
mutual fund or exchange-traded fund
that aims to replicate the movements
of an index of a specific financial
market.
• Fund of funds: A fund of funds (FoF) is
an investment fund that holds a
portfolio of other investment funds
rather than investing directly in
shares, bonds or other securities.
Different type of
Funds
• Real estate Stocks: These are from
firms involved in real estate such as
builder, supplier, architects and
engineers, financial lenders, etc.
•
• Venture Capital Funds: Venture
Capital Mutual Funds invest in the
start-up and new companies.
•
Investment Strategies
Strength Weakness Opportunities Threats
SEBI/AMFI Limited Mutual fund Large number of
have takenan channels of investment as a substitutes
active role in distribution i.e. % of Household available to
protecting banks and agent savings invested Indian investor-
investors account for in financial Deposit, equities
interest through more than 70% assets is less and real estate.
regulations of distribution than 1%
Open product Lack
certifications of effort
of mutual of Because of the In India low risk
funds
architecture
and code of i.e. wealth economic investment
distributors
conduct managers in growth, products like
offer a range of educating the investors are PPF offer high
Mutual fund market about theactively returns.
Has oftentoadded Absence
products of
mutual products Mutual funds in As more foreign
diversifying
as a from
choose global
has beenpolicies
the India permitted players enter
their income
counterbalance on global
cause of low to invest
into up to India through
various
to equity market mutual funds 10
penetration % of the net the JV route,
funds.
volatility and assets abroad in investors in
market liquidity foreign India will need
securities to educate
themselves
The effect of
slowdown
• The Mutual Fund Industry was
hardhit by economic slowdown.
• Positive impact
– Investors who used to directly invest
in the market have started
investing through Mutual Funds.
– MF Companies were able to pick
some good stocks at a very low
price from the market
– The MF’s have started looking more
into the fundamentals and are
now playing safe.

Tax Benefits
• Section 10(33) of the Income
Tax Act, 1961 : The dividend
received by the investors from
the scheme will be exempt from
income tax for all categories of
investors under Section 10(33) of
the Income Tax Act, 1961
• Wealth Tax Benefits: Mutual Fund
units are exempt from Wealth Tax.
•

Tax Benefits
• Capital Gains benefit under Section
112 of the Income Tax Act, 1961
– Long-term capital gains in respect of
Units held for a period of more
than 12 months will be chargeable
under Section 112 of the Income
Tax Act, 1961, at a concessional
rate of tax @ 20% (excluding
surcharge)
– From the full value of consideration,
the following amounts would be
deductible to arrive at the amount
of capital gains:
• Cost of acquisition as
adjusted by Cost Inflation
Index notified by the Central
Government
• Expenditure incurred wholly
and exclusively in
connection with such
transfer
Regulatory
Framework
• SEBI Mutual Fund Regulations(1996)
•
• Indian Trusts Act
•
• Registrar of Companies takes care of the
Compliances
•
• Company Law Board is responsible for
levying penalties.
•
•
•

Source: AMFI
Ratings of Mutual funds in
India
The Road Ahead


• The Mutual fund industry is expected to

increase its share from present 6.5%
of GDP to 21% in next 10 years. The
size of the industry is expected to
grow to 1,65,000 crore
• The Steps taken by the RBI for Financial
inclusion and the Financial Literacy of
the Rural Sector is likely to mobilize
the savings of the Households into
the Financial Markets.
– The Mutual Funds is the most likely route
provided the risk averse nature of the
Indian Investors.
• The growing GDP of the country is likely
to increase and the key driver to
utilize this growth would be the
The Road Ahead
• Service Innovations would play a key
role to tap the potential.
• Distribution Front – The distribution
has to be improved in order to
serve the rural market and tier 2
and tier 3 cities.
• Technology Innovations like call-
centres to handle investor queries,
transaction facility throughphones
and providing information through
the use of SMS’s.
•
References
•
• www.wikipedia.org
• www.moneycontrol.com
• www.amfiindia.com
THANK YOU