MUTUAL FUND

Presented by:
Anchal Mathur
Gitanjali Joshi
Pramil KumarGupta
Ronak Doshi
Parag Dhakate
An old Axiom :

“It is not wise to put all eggs

into one basket”

……… was probably in the minds of

those who formed the first mutual fund.
 Concept
• A Mutual Fund is a trust that pools the savings of a number of
investors who share a common financial goal.

• The money thus collected is then invested in capital market

instruments such as shares, debentures and other securities.

• The income earned through these investments and the capital

appreciation realized are shared by its unit holders in
proportion to the number of units owned by them.

• Thus a Mutual Fund is the most suitable investment for the

common man as it offers an opportunity to invest in a
diversified, professionally managed basket of securities at a
relatively low cost.
Mutual fund industry in India
Concept of mutual fund introduced by UTI in 1963 in
India.
Around 1000 mutual fund schemes in India.
A compounded growth of 28% over 2006-2010, 
Total Assets under Management size in India of all
Mutual funds is about Rs. 8,05,239 crs. at the end of
June 2010.
Can be broadly put into four phases according to the
development of the sector.
 Organizational Structure of MF
SEBI (mutual fund) Regulation,1996
Structure of MF in India
SPONSER

TRUSTEE

AMCs
Custodian

Distribution/Agents Banker R&T Agents

Sponsor
Akin to the Promoter of the company,
Contribute min 40% of net worth of AMC,
Posses sound financial record over five years
period,
Establishes the Fund,
Gets it registered with the SEBI,
Forms a trust, & appoints Board of trustee.

Trustees
Holds assets on behalf of unit holders in trust.
Trustees are caretaker of unit holders money.
Two third of the trustees shall be independent
persons (not associated with the sponsor).

Trustees ensure that the system, processes &

personnel are in place.

Resolves unit holders GRIEVANCES.

Appoint AMC & Custodian, & ensure that all

activities are accordance with the SEBI regulation.
Custodian
Holds the fund’s securities in safekeeping,
Settles securities transaction for the fund,
Collects interest & dividends paid on securities,
Records information on corporate actions.

Examples of custodian

HDFC CITY BANK

ABN AMRO IIT CORPORATE SERVICES

SBI INDIA STANDARD CHARTRED

SHCIL DEUTSCHE BANK

Asset Management Company
Floats schemes & manages according to SEBI.
Can not undertake any other business activity,
other than portfolio mgmt services.
75% of unit holders can jointly terminate
appointment of AMC.
At least 50% of independent directors.
Chairman of AMC can not be a trustee of any MF.

Examples of AMC
UTI ICICI Prudential Reliance
SBI Canbank ING Vysya
Stanchart Taurus HSBC
Distributor / Agents
Sell units on the behalf of the fund.
It can be bank, NBFCs, individuals.

Banker
Facilitates financial transactions,
Provides remittance facilities.

Registrar & Transfer Agent

Maintains records of unit holders’ accounts &
transactions
Disburses & receives funds from unit holder
transactions,
Prepares & distributes a/c settlements,
Tax information, handles unit holder
communication,
Provides unit holder transaction services.

Examples of R & T Agents

CAMS KARVY
MCS Ltd Datamatics
MN Dastoor & Co IIT Corporate Services
Computeronics TCS
ICICI Infotec UTI ISL
Regulators of mutual fund in India

AMFI (The Association of Mutual Funds in India )

SEBI (Securities and Exchange board of India).

 AMFI

• AMFI is the industry association of all mutual funds

operating in India.
• It is a non-profit organization
• Incorporated on 22 August, 1995.
• Apex body of all the registered AMCs.
• All AMCs are its member.
• Objective to maintain high ethical & professional
standard.
.
 ROLE AND ACTIVITIES OF ASSOCIATION
OF MUTUAL FUNDS IN INDIA

 To promote and protect the interests of Mutual Funds and

their unit holders.

 To define and maintain high ethical and professional

standards in the industry.

 To enhance public awareness of Mutual Funds.

 To represent industry views and suggestions to the

Regulator, Government and the Central Bank

 Provide certificate to Agents to sell MF

 Regulatory Aspect
• SEBI (MF), 1996 as regulator of MF.
Provisions of SEBI IMPACT
Legal character of MF •MF can be set up only as TRUST.
•MF can’t invest in Gold, silver & real asset.
•Unit holder can’t challenge trustees.

Structure of MF •Arms-length relationship b/w various constituents.

•Independent custodian.

Registration of MF •Must fulfill eligibility criteria u/s 7.

•AMC have min net worth of 10 cr.

Operation of MFs •Disclosure of information.

•Advertisements.
•Daily pricing.
•Risk management system.
AMFI Classification of MF schemes
Fund schemes Portfolio objectives

Growth & Income High Risk & High Return

Balanced Moderate Risk & Return

Liquid & Money Market Fixed Return

Gilt Zero Risk

ELSS Tax Saving

Fund of funds Additional diversification

Each category is classified into more sub-categories.

TYPES OF MUTUAL FUNDS
Other classification of MF schemes
• By Structure
– Open-Ended – anytime enter/exit
– Close-Ended Schemes – listed on exchange, redemption after period of
scheme is over.
• By Investment Objective
– Equity (Growth) – only in Stocks – Long Term (3 years or more)
– Debt (Income) – only in Fixed Income Securities (3-10 months)
– Liquid/Money Market (including gilt) – Short-term Money Market
(Govt.)
– Balanced/Hybrid – Stocks + Fixed Income Securities (1-3 years)

• Other Schemes
– Tax Saving Schemes
– Special Schemes (ETFs, foreign funds)
Risk –Return of different schemes
 Investment Strategy
• Systematic Investment Plan (SIP)
– Invest a fixed sum every month. (6 months to 10 years)
– Fewer units when the share prices are high, and more units
when the share prices are low. Average cost price tends to fall
below the average NAV.
– Nowadays ,Insurance is free with SIP.
• Systematic Transfer Plan (STP)
– Invest in debt oriented fund and give instructions to transfer a
fixed sum, at a fixed interval, to an equity scheme of the same
mutual fund.

• Systematic Withdrawal Plan (SWP)

• Flexi Withdrawal Plan (FWP)
• Dividend sweep
 Investment option

• Growth option
– investors who are looking for capital appreciation.

• Dividend payout option

– investors who are looking for cash inflow or income.

• Dividend reinvestment option

– When the investor chooses to reinvest the dividend in the
scheme.
 Portfolio Management Process

INVESTMENT OBJECTIVE

PORTFOLIO CONSTRUCTION

SECURITY SELECTION

INVESTMENT

PORTFOLIO OPTIMISER
 Fund Management Process

Expected Return

Portfolio Optimal
Volatility &
Optimization Portfolio
Correlation Estimates

Constraints on
Investor objective
Portfolio choice
Fund manager’s Investment Judgments
Return Risk

market Beta or Market Risk

Extra market co-variance

Group /Industry
Or
Growth Cyclical stable
Group /Industry Risk

Individual Stock Specific Risk

Active Passive
Strategy Strategy
 Some important terms
 Entry and Exit loads
 Repurchase price
 Market Price
 Issue price
 NAV ( net asset value) =

M.V OF FUND’S INVESTS + REC + ACCRUED INCOME – LIABILITIES – ACCRUED EXP

NO. OF SHARES OR UNITS OUTSTANDING
Measurement of Mutual Funds
By Total Return
Income + Capital Gain +/- Price Change
Initial Investment
Versus Return of Peer Groups
 By broad or narrow categories of fund investments
 By investment objective
 By investment style based on historical holdings (general equity
funds)
Versus Return of an Index
 May be broad or focus on particular region or country
 “Theoretical” index return does not include expenses that would be
involved if an actual portfolio

2–29
Performance of mutual funds
Methods used for performance evaluation
Jenson measure
Ri = Rf + Bi (Rm - Rf)
Treynor measure (reward to volatility)
Treynor's Index (Ti) = (Ri - Rf)/Bi.
Sharpe measure (reward to variability)
Sharpe index (Si) = (Ri - Rf)/Si
How Do You Make Money
on a Mutual Fund?

A mutual fund investor can make money in several ways:

1. The fund earns income from interest or dividends
on its investments which it distributes to its
investors.
2. The fund produces capital gains by selling
securities at a profit and distributes those gains
to its investors.
3. You sell your shares of the mutual fund at a
higher price than you paid for them.
WHY CHOOSE MUTUAL FUNDS?

Affordability

Professional management

Diversification

Convenience

Liquidity

Tax breaks

Transparency
Drawbacks of Mutual Funds

No Guarantees

Fees and commissions

Taxes

Management risk
CONCLUSION
THANK YOU