Mutual fund

A Mutual Fund is an investment tool that allows small investors access to a well-diversified portfolio of equities, bonds and other securities. Each shareholder participates in the gain or loss of the fund. Units are issued and can be redeemed as needed. The fund's Net Asset Value (NAV) is determined each day. The income earned through these investments and the capital appreciations 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 funds are financial intermediaries, which collect the savings of investors and invest them in a large and well-diversified portfolio of securities such as money market instruments, corporate and government bonds and equity shares of joint stock companies. Mutual funds are conceived as institutions for providing small investors with avenues of investments in the capital market.Since small investors generally do not have adequate time, knowledge, experience and resources for directly accessing the capital market, they have to rely on an intermediary, which undertakes informed investment decisions and provides consequential benefits of professional expertise. The raison d’être of mutual funds is their ability to bring down the transaction costs. The advantages for the investors are reduction in risk, expert professional management, diversified portfolios, and liquidity of investment and tax benefits.

By pooling their assets through mutual funds, investors achieve economies of scale. The advantage that such a investing logic offers to an individual investor is the advantage of scale. A collected corpus can be used to procure a


Mutual fund

diversified portfolio, indicating greater returns as also create economies of scale through cost reduction.

This principle has been effective world-wide as more and more investors are going the mutual fund way. This portfolio diversification ensures risk minimization. The criticality of such a measure comes in when you factor in the fluctuations that characterize stock markets. The interests of the investors are protected by the SEBI, which acts as a watchdog. Mutual funds are governed by the SEBI (Mutual Funds) Regulations, 1993.


Mutual fund

The mutual fund industry in India began with the setting up of the Unit Trust In India (UTI) in 1964 by the Government of India. During the last 36 years, UTI has grown to be a dominant player in the industry with assets of over Rs.24,464 Crores as of March 31, 2000. The UTI is governed by a special legislation, the Unit Trust of India Act, 1963. In 1987 public sector banks and insurance companies were permitted to set up mutual funds and accordingly since 1987, 6 public sector banks have set up mutual funds. Also the two Insurance companies LIC and GIC established mutual funds. Securities Exchange Board of India (SEBI) formulated the Mutual Fund (Regulation) 1993, which for the first time established a comprehensive regulatory framework for the mutual fund industry. Since then several mutual funds have been set up by the private and joint sectors. Mutual funds have been a significant source of investment in both government and corporate securities. It has been for decades the monopoly of the state with UTI being the key player, with invested funds exceeding Rs.300 bn. (US$ 10 bn.). The state-owned insurance companies also hold a portfolio of stocks. Presently, numerous mutual funds exist, including private and foreign companies. Banks--- mainly state-owned too have established Mutual Funds (MFs). Foreign participation in mutual funds and asset management companies is permitted on a case by case basis. UTI, the largest mutual fund in the country was set up by the government in 1964, to encourage small investors in the equity market. UTI has an extensive marketing network of over 35, 000 agents spread over the country. The UTI scrips have performed relatively well in the market, as compared to the Sensex trend. However, the same cannot be said of all mutual funds. All MFs are allowed to apply for firm allotment in public issues. SEBI regulates the functioning of mutual funds, and it requires that all MFs should be

The minimum net worth of an AMC or its affiliate must be Rs. call and notice money. commercial paper. The actual fund management activity shall be conducted from a separate asset management company (AMC). MFs can be penalized for defaults including non-registration and failure to observe rules set by their AMCs. certificates of deposit and dated government securities having unexpired maturity up to one year. All other schemes floated by MFs are required to be registered with SEBI. commercial bills accepted/co-accepted by banks. 50 million to act as a manager in any other fund. the RBI permitted private sector institutions to set up Money Market Mutual Funds (MMMFs). 4 . They can invest in treasury bills.Mutual fund established as trusts under the Indian Trusts Act. MFs dealing exclusively with money market instruments have to be registered with RBI. In 1995.

when non.6.540bn.The mutual fund industry can be broadly put into four phases according to the development of the sector.Mutual fund MUTUAL FUND INDUSTRY IN INDIA The end of millennium marks 49 years of existence of mutual funds in this country. The private sector entry to the fund family raised the AUM to Rs. At the end of 1988 UTI had Rs.In the past decade. With was on the borders and economic turmoil that depressed the financial market. Indian mutual fund industry had seen a dramatic improvement. Before. The impetus for establishing a formal institution came from the desire to increase the propensity of the middle and lower groups to save and to invest. Each phase is briefly described as under. While some are for mutual funds others are against it. Though the growth was slow. But it accelerated from the year 1987. the monopoly of the market had seen an ending phase: the Assent under Management(AUM) was Rs.UTI commenced its operation fom july 1964. it reached the height of 1. both qualities wise as well as quantity wise.470bn in March 1993 and till April 2004.700 crores of assets under management.UTI players entered the industry. UTI came into existence during a period marked by great political and economic uncertainity in India. In 1978 UTI was de-linked from RBI and the Industrial Development Bank of India(IDBI) took ove the regulatory and admistrative control in place of RBI. The first scheme launched bye UTI was Unit Scheme 1964. entrepreneurs were hesitant to enter capital market. Investors opinion is still divided.67bn. It was set up by the Reserve Bank of India and functioned uned the Regulatory and admisnistrative control of the Reserve Bank f India. The ride through these 49 years is not been smooth. 5 .  First Phase-1964-87 Unit Trust of India(UTI) was established on 1963 by Act of Parliament.

JP Morgan. George Soros and Capital International along with the host of domestic players join the party. under which all mutual funds. 6 . Also. The Unit Trust of India with Rs. But for the equity funds.1. The industry was one-entity show till 1986 when the UTI monopoly was broken when SBI and BOI. SBI mutual fund was the first followed Canbank Mutual Fund (Dec 87).21. 1130bn.25bn in 1964 the industry has grown at a compounded average growth rate of 26.000 as assets under management. Jardine Fleming.541 crores of assets under management was way ahead of other mutual funds. Indian Bank Mutual Fund (Oct 90). Starting with an asset base of Rs. the period of 1994-96 was one of the worst in the history of Indian Mutual Funds. Bank of Baroda Mutual fund (oct 92). 47. The 1993 SEBI (Mutual Fund)Regulations substituted by a more comprehensive and revised Mutual Find regulations 1996. But the year 1999 saw immense future potential and developments in this sector. LIC. There were 33 mutual fund with total assets of Rs. Punjab National Bank Mutual Fund (Aug 89). LIC in 1989 and GIC in 1990. except UTI were to be registered and governed. sponsored by public sector banks.  Third phase 1990-2003 (entry of private sector funds): When the private sector made its debut in 1993-94. 1993 was the year in which the first Mutual fund Regulations came into being. the stock market was booming. Other Private sector mutual funds are Morgan Sanley. The end of 1993 marked Rs.805 crores. GIC etc. 0. This year signaled the year of resurgence of mutual funds and the regaining of investor confidence in these MF’s.Mutual fund  Second phase 1987-1993(entry of public sector funds) The period 1986-1993 can be termed as the period of public sector mutual funds (PMSs). Entry of non-UTI mutual funds. From one player in 1985 the number increased to 8 in 1993. As at the end of January 2003. 44.34% to its current size of Rs.

000 crores. sponsored by SBI.000 crores of AUM and with the setting up of a UTI mutual fund. 76. 7 .The second is the UTI Mutual Fund Ltd. At the end of year 2006 the AUM crossed 2. There were 29 fund. the mutual fund industry has entered its current phase of consolidation and growth.50. 153108 crores under 421 Structure of Mutual Funds in India. Which manage assets of Rs. PNB. It was bifurcated into two separate entities. The specified undertaking of Unit Trust of India. and with recent mergers taking place among different private sector funds. BOB and LIC. One is the Specified Undertaking of the Unit Trust of India with AUM of Rs. As at the end of September 2004.835 crores (as on January 2003).29.Mutual fund  Fourth Phase – Since February 2003 This phase had bitter experience for UTI. It is registered with SEBI and functions under the Mutual Fund Regulations. With the bifurcation of the erstwhile UTI which had in March 2000 more than Rs. conforming to the SEBI Mutual Fund Regulations. functioning under an adminisratior and unde the rules framed by Government of India and Does not come under the purview of the Mutual Fund Regulations.

Such schemes may be classified mainly as follows:  GROWTH /EQUITY ORIENTED SCHEME The aim of growth funds is to provide capital appreciation over the medium to long.g. Such funds have comparatively high risks. 8 .e. In order to provide an exit route to the investors. some close-ended funds give an option of selling back the units to the mutual fund through periodic repurchase at NAV related prices. or balanced scheme considering its investment objective. 5-7 years.  OPEN-ENDED FUND/ SCHEME An open-ended fund or scheme is one that is available for subscription and repurchase on a continuous basis. These schemes do not have a fixed maturity period. etc. which are declared on a daily basis. These mutual funds schemes disclose NAV generally on weekly basis. SCHEMES ACCORDING TO INVESTMENT OBJECTIVE: A scheme can also be classified as growth scheme.Mutual fund CATEGORIES OF MUTUAL FUND SCHEMES A mutual fund scheme can be classified into open-ended scheme or closeended scheme depending on its maturity period. and the investors may choose an option depending on their preferences.  CLOSE-ENDED FUND/ SCHEME A close-ended fund or scheme has a stipulated maturity period e.term. Investors can conveniently buy and sell units at Net Asset Value (NAV) related prices. Such schemes normally invest a major part of their corpus in equities. These schemes provide different options to the investors like dividend option. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where the units are listed. Such schemes may be open-ended or close-ended schemes as described earlier. SEBI Regulations stipulate that at least one of the two exit routes is provided to the investor i. either repurchase facility or through listing on stock exchanges. income scheme. capital appreciation. The key feature of open-end schemes is liquidity. The fund is open for subscription only during a specified period at the time of launch of the scheme.

 MONEY MARKET OR LIQUID FUND These funds are also income funds and their aim is to provide easy liquidity.  BALANCED FUND The aim of balanced funds is to provide both growth and regular income as such schemes invest both in equities and fixed income securities in the proportion indicated in their offer documents. These schemes invest exclusively in safer short-term instruments such as treasury bills. preservation of capital and moderate income. commercial paper and inter-bank call money. corporate debentures. These funds are appropriate for corporate and individual investors as a means to park their surplus funds for short periods. etc. Returns on these schemes fluctuate much less compared to other funds. They generally invest 40-60% in equity and debt instruments. These funds are not affected because of fluctuations in equity markets. NAVs of such funds are likely to increase in the short run and vice versa.Mutual fund The investors must indicate the option in the application form.  INCOME / DEBT ORIENTED SCHEME The aim of income funds is to provide regular and steady income to investors. However. 9 . However. certificates of deposit. These funds are also affected because of fluctuations in share prices in the stock markets. opportunities of capital appreciation are also limited in such funds. However. NAVs of such funds are likely to be less volatile compared to pure equity funds. The NAVs of such funds are affected because of change in interest rates in the country. If the interest rates fall. long-term investors may not bother about these fluctuations. Government securities and money market instruments. Such schemes generally invest in fixed income securities such as bonds.The mutual funds also allow the investors to change the options at a later date. Such funds are less risky compared to equity schemes. government securities. These are appropriate for investors looking for moderate growth. Growth schemes are good for investors having a long-term outlook seeking appreciation over a period of time.

which are traded on the stock exchanges. etc These schemes invest in the securities in the same weightage comprising of an index. For example. NAVs of such schemes would rise or fall in accordance with the rise or fall in the index. There are also exchange traded index funds launched by the mutual funds. The details of such tax saving schemes are provided in the relevant offer documents. Equity Linked Savings Schemes (ELSS) and Pension Schemes. 10 . This is made possible because the Government offers tax incentives for investment in specified avenues. though not exactly by the same percentage due to some factors known as "tracking error" in technical terms. Necessary disclosures in this regard are made in the offer document of the mutual fund scheme. S&P NSE 50 index (Nifty). Other Schemes Tax Saving Schemes These schemes offer tax rebates to the investors under tax laws as prescribed from time to time.Mutual fund  INDEX FUNDS Index Funds replicate the portfolio of a particular index such as the BSE Sensitive index.

depending on the type of scheme  Sale Price Is the price you pay when you invest in a scheme or NAV a unit holder is charged while investing in an open-ended scheme is sale price. then the NAV per unit of the fund is Rs.  Repurchase Price Is the price at which a close-ended scheme repurchases its units and it may include a back-end load. The per unit NAV is he net asset value of the scheme divided by the number of units outstanding on the Valuation date.daisy or weekly. if the market value of the securities of a mutual fund scheme is Rs 200 lakhs and the mutual fund has issued 10 lakhs units at Rs.20. Such prices are NAV related. It may include a Sale load. For example. Also called Offer Price. Net Asset Value is the market value of securities of scheme divided by the total number of units of the scheme on any particular date. 11 . if applicable. This is also called Bid Price.  Redemption Price Is the price at which open-ended schemes repurchase their units and close-ended schemes redeem their units on maturity.Mutual fund FREQUENTLY USED TERMS  NET ASSET VALUE(NAV) Net Asset Value is the market value of the assets of the scheme minus its liabilities. 10 each to the investors. NAV is required to be disclosed by the mutual funds on a regular basis.

 DIVERSIFICATION : Mutual Funds always have an investment mix. the investor gets the money back promptly at net NAV pegged prices.Mutual fund BENEFITS OF MUTUAL FUNDS  PROFESSIONAL MANAGEMENT: Mutual Funds are backed by experienced and skilled professionals. In closed-end schemes. delayed payments and follow up with brokers and companies. custodial and other fees translate into lower costs for investors. The fund also repurchases from the investors at 12 .  ECONOMIES: Mutual Funds are a relatively less expensive way to invest compared to directly investing in the capital markets because the benefits of scale in brokerage. reducing the risk of a substantial fall in the money you have invested. the units can be sold on a stock exchange at the prevailing market price.  RETURN POTENTIAL : Over a medium to long-term. a dedicated investment research team that analyses the performance and prospects of companies and selects investments. This is important when you want to have a diversified portfolio through direct equity investments. Mutual Funds have the potential to provide a higher net return as they invest in a diversified basket of selected securities.  LIQUIDITY: In open-end schemes.  CONVENIENT ADMINISTRATION: Investing in a Mutual Fund reduces paperwork and helps you avoid many problems such as bad deliveries. The diversity in this mix spreads out the probability of profits and losses.

A mutual fund because of its large corpus allows even a small investor to take the benefit of its investment strategy.  FLEXIBILITY: Through features such as regular investment plans.  OPTIONS: Mutual Funds offer a family of schemes to suit your varying needs over a lifetime.  INVESTOR SAFETY: All Mutual Funds are registered with SEBI and they function within the provisions of strict regulations designed to protect the interests of investors.  AFFORDABILITY: Investors individually may lack sufficient funds to invest in high-grade stocks. you can systematically invest or withdraw funds according to your needs and convenience.  TRANSPARENCY: You get regular information on the value of your investment in addition to disclosure on the specific investments made by your scheme. There is scope to speedily disinvest assets and obtain disinvestments proceeds. the proportion invested in each class of assets and the fund manager's investment strategy and outlook. regular withdrawal plans and dividend reinvestment plans.Mutual fund NAV pegged prices. The operations of Mutual Funds are regularly monitored by SEBI. 13 .

Even if you don’t use a broker or other financial adviser.Mutual fund LIMITATIONS OF MUTUAL FUND  No Guarantee: No investment is risk free. if you invest in Index Funds.  Management Risk: When you invest in a mutual fund.  Taxes: During a typical year. If the entire stock market declines in value. Some funds also charge sales commissions or “loads” to compensate brokers. If your fund makes a profit on its sales. or financial planners. Investors encounter fewer risks when they invest in mutual funds than when they buy and sell stocks on their own. you depend on the fund manager to make the right decisions regarding the fund’s portfolio. the value of mutual fund shares will go down as well. you might not make as much money on your investments as you expected. anyone who invests through a mutual fund runs the risk of losing money. If the manager does not perform as well as you had hoped. because these funds do not employ managers. you will pay taxes on the income you receive. most actively managed mutual funds sell anywhere from 20 to 70 percent of the securities in their portfolios. you will pay a sales commission if you buy shares in a load fund. financial consultants. you forego management risk. 14 . Of course. even if you reinvest the money you made.  Fees and commissions: All funds charge administrative fees to cover their day-to-day expenses. However. no matter how balanced the portfolio.

In order to avoid any confusion it is better to go through the literature such as offer document and fact sheets that mutual fund companies provide on their funds.  Don't rush in picking funds. One can lose substantially if one picks the wrong kind of mutual fund. One should identify the degree of risk bearing capacity one has and also clearly state the expectations from the investments. One should take a look at the portfolio of the funds for the purpose. expectations and risk profile is of prime importance failing which. 15 . Excessive exposure to any specific sector should be avoided. Mutual funds invest with a certain ideology such as the "Value Principle" or "Growth Philosophy". as it will only add to the risk of the entire portfolio.  Try to understand where the money is going: It is important to identify the nature of investment and to know if one is compatible with the investment.Mutual fund Ground Rules of Mutual Fund Investing  Assess yourself: Self-assessment of one’s needs. one will make more mistakes in putting money in right places than otherwise. Irrational expectations will only bring pain. Both have their share of critics but both philosophies work for investors of different kinds. It is thus important to know the risks associated with the fund and align it with the quantum of risk one is willing to take. Identifying the proposed investment philosophy of the fund will give an insight into the kind of risks that it shall be taking in future. think first: one first has to decide what he wants the money for and it is this investment goal that should be the guiding light for all investments done.

No matter what the risk profile of a person is. even investors of equity should be judicious and invest some portion of the investment in debt. One would do well to remember that nobody can perfectly time the market so staying invested is the best option unless there are compelling reasons to exit.  Be regular: Investing should be a habit and not an exercise undertaken at one’s wishes. One should abstain from speculating which in other words would mean getting out of one fund and investing in another with the intention of making quick money. It is thus of key importance that there is thought given to the process of investment and to the time horizon of the intended investment. 16 . it is good to place money in the hands of several fund managers. This might reduce the maximum return possible. As we said earlier. since it is extremely difficult to know when to enter or exit the market. The basic philosophy of Rupee cost averaging would suggest that if one invests regularly through the ups and downs of the market. it is important to beat the market by being systematic.Mutual fund  Invest. he would stand a better chance of generating more returns than the market for the entire duration. but will also reduce the risks. if one has to really benefit from them. Don’t speculate: A common investor is limited in the degree of risk that he is willing to take. Diversification even in any particular asset class (such as equity. So putting one’s money in different asset classes is generally the best option as it averages the risks in each category. Thus. Not all fund managers have the same acumen of fund management and with identification of the best man being a tough task. it is always advisable to diversify the risks associated. debt) is good.  Don’t put all the eggs in one basket: This old age adage is of utmost importance.

as the amount can be directly/electronically transferred from the account of the investor.  Find the right funds Finding funds that do not charge much fees is of importance. The Automatic investment Plans offered by some funds goes a step further.Mutual fund The SIPs (Systematic Investment Plans) offered by all funds helps in being systematic. Asking the intermediaries is one of the ways to take care of the problem. Funds that charge more will reduce the yield to the investor 17 . This is even more important for debt funds as the returns from these funds are not much. as the fee charged ultimately goes from the pocket of the investor.  Do your homework: It is important for all investors to research the avenues available to them irrespective of the investor category they belong to. Having identified the risks associated with the investment is important and so one should try to know all aspects associated with it. This is important because an informed investor is in a better decision to make right decisions. All that one needs to do is to give post-dated cheques to the fund and thereafter one will not be harried later.

All these investments involve an element of risk. All these factors influence the performance of Mutual Funds. The unit value may vary depending upon the performance of the company and if a company defaults in payment of interest/principal on their debentures/bonds the performance of the fund may get affected. bond prices fall and this decline in underlying securities affects the fund negatively.  Non-market risk Bad news about an individual company can pull down its stock price. Their returns are linked to their performance.  Interest rate risk Bond prices and interest rates move in opposite directions. They invest in shares. thereby impacting the fund performance. When interest rates rise. Besides incase there is a sudden downturn in an industry or the government comes up with new a regulation which affects a particular industry or company the fund can again be adversely affected. Some of the Risk to which Mutual Funds are exposed to is given below:  Market risk If the overall stock or bond markets fall on account of overall economic factors. debentures. This risk can be reduced by having a diversified portfolio that consists of a wide variety of stocks drawn from different industries. the value of stock or bond holdings in the fund's portfolio can drop. bonds etc.Mutual fund Risks involved in investing in Mutual Funds Mutual Funds do not provide assured returns. which can negatively affect fund holdings. 18 .

higher will be the risk associated with it. Worldwide. So when the funds invest in corporate bonds. with a plethora of schemes to choose from. the only quantitative way to judge how good a fund is at present.Mutual fund  Credit risk Bonds are debt obligations. is one of the most preferred investment avenues in India. Factors such as investment strategy and management style are qualitative. but the funds record is an important indicator too. Risk associated with a fund. good mutual fund companies over are known by their AMCs and this fame is directly linked to their superior stock selection skills. it should also include the risk taken by the fund manager because different funds will have different levels of risk attached to them. there is a need to correctly assess the past performance of different mutual funds. called market risk or systematic risk and 19 . AMCs must be held accountable for their selection of stocks. frankly. which affect all the securities present in the market. First. there must be some performance indicator that will reveal the quality of stock selection of various AMCs. Return alone should not be considered as the basis of measurement of the performance of a mutual fund scheme. For mutual funds to grow. The higher the fluctuations in the returns of a fund during a given period. can be defined as variability or fluctuations in the returns generated by it. However. general market fluctuations. it leads to a fall in the value of the bond causing the NAV of the fund to take a beating. Therefore. These fluctuations in the returns generated by a fund are resultant of two guiding forces. In other words. in a general. Performance Measures or Risk Measurement Of Mutual Funds Mutual Fund industry today. with about 34 players and more than five hundred schemes. it is. Though past performance alone can not be indicative of future performance. the retail investor faces problems in selecting funds. they run the risk of the corporate defaulting on their interest and principal payment obligations and when that risk crystallizes.

fluctuations due to specific securities present in the portfolio of the fund. is measured in terms of Beta. called unsystematic risk. Systematic risk. The more responsive the NAV of a mutual fund is to the changes in the market. While unsystematic risk can be diversified through investments in a number of instruments. The Total Risk of a given fund is sum of these two and is measured in terms of standard deviation of returns of the fund. systematic risk can not. higher will be its beta. which represents fluctuations in the NAV of the fund vis-à-vis market. 20 . Beta is calculated by relating the returns on a mutual fund with the returns in the market.Mutual fund second. By using the risk return relationship. on the other hand. we try to assess the competitive strength of the mutual funds vis-à-vis one another in a better way.

150 The third largest category of mutual funds are the ones floated by the private sector and by foreign asset management companies. Equity. The Sponsor These regulation make it mandatory to a mutual fund to have three-tier structure of Sponsor-Trustees-Asset Management Company. which. With some being open ended and some being closed ended. is the biggest scheme with a corpus of about 200 billion. 1996. The second largest category of mutual funds are the ones floated by nationalized banks. The aggregate corpus of the funds managed by this category of AMC’s is around Rs. Most of its investors believe that the UTI is government owned and controlled.Mutual fund STRUCTURE OF THE INDIAN MUTUAL FUND INDUSTRY The Indian Mutual Fund industry is dominated by the Unit Trust of India which has a total corpus of 700 Billion collected from over 20 million investors.The structure of mutual fund in India is governed by SEBI (Mutual fund) Regulation. 60 billion. UTI was floated by financial institutions and is governed by a special act of Parliament. balanced. Diagram given below illustrates the organization set-up of a mutual fund. custodians and the AMC with 21 .e. which is a balanced fund. income promoter of the mutual fund appoints trustees. Organization of A Mutual Fund There are many entities involved in organization of Mutual Fund. is true for all practical purposes. The UTI has many funds/ schemes in all categories i. while legally incorrect. GIC AMC floated by General Insurance Corporation and Jeevan Bima Sahayog AMC floated by the LIC are some of the other prominent ones. The largest of these are Birla Capital AMC and Kotak AMC . The aggregate corpus of the assets managed by this category of AMC’s is about Rs. Canbank asset management floated by Canara Bank and SBI Funds Management floated by State Bank of India are the largest of these. The Unit scheme 1964 commonly referred to as US 64.

They check if the AMC’s investments are within well-defined limits. Trust/ Board of Trustees: Trustees hold a fiduciary responsibility towards unit holders by protecting their interests. The sponsor establishes the mutual fund and registers the same with SEBI. It also exercises due diligence on investments.25 percent if collections are below Rs. safekeeping of the units and segregating assets and settlements between schemes. Trustees float and market schemes. its fee should not exceed 1. A fund’s AMC can neither act for any other fund nor undertake any business other than asset management. 100 crore. And. maintains proper accounting and information for pricing of units. it takes custody of securities and other assets of mutual fund. and secure necessary approvals. and submits quarterly reports to the trustees. whether the fund’s assets are protected. 100 crore and 1 percent if collections are above Rs. and also ensure that unitholders get their due returns.5 percent of the weekly net asset value. SEBI can pull up an AMC if it deviates from its prescribed role. investors get an annual report. calculates the NAV. Its net worth should not fall below Rs. collecting income-distributing dividends. For major decisions concerning the fund. and provides information on listed schemes. They submit reports every six months to SEBI. Custodian: Often an independent organization. Its responsibilities include receipt and delivery of securities. 10 crore. Sponsors must contribute at least 40% of the capital of the AMC. An AMC takes decisions. they have to take the unitholders’consent. Their charges range 22 . compensates investors through dividends. Fund Managers/ AMC: They are the ones who manage money of the investors. Trustees are paid annually out of the fund’s assets – 0. They also review any due diligence by the AMC.Mutual fund prior approval of SEBI.

and is involved in appointment of all other functionaries. E. markets them and mobilizes fund. Trustees appoint AMC in consultation with the sponsors and according to SEBI regulation. Birla Global Finance is the sponsor of the Birla Sun Life Asset Management Company Ltd.In the Indian context. these sponsors need approval from a regulator. It seeks the service other functionaries in carrying out these functions. Trustees review and ensure that net worth of the company is according to stipulated norms.. it is also subject to Indian Company Act.2 percent of the net value of the holding.15-0. All mutual fund scheme floated by AMC have to be approved by trustees. The AMC structures the mutual fund products. SEBI (Securities exchange Board of India) in our case. in which it holds a majority stake. The AMC is the first functionary to be appointed . the sponsors promote the Asset Management Company also.g. Custodians can service more than one fund. A draft offer document is to be prepared at the time of launching the fund. In India. It also hires another entity to be the custodian of the assets of the fund and perhaps a third one to handle registry work for the unit holders (subscribers) of the fund. the costs involved in the process and the broad rules for entry into and exit from the fund and other areas of operation. every quarter.Mutual fund between 0. the AMC is its operational face. manages the funds and services the investors. it pre specifies the investment objectives of the fund. In many cases a sponsor can hold a 100% stake in the Asset Management Company (AMC). Provisions of Indian Trust Act govern board of trustees and trust. the risk associated. which has floated different mutual funds schemes and also acts as an asset manager for the funds collected under the schemes. Typically. as in most countries. 23 . If trustee is a company . Mutual Fund is managed either trust company or board of trustees. A sponsor then hires an asset management company to invest the funds according to the investment objective. Though the trust is the mutual fund.

real estate etc.Mutual fund COMPARISON OF MUTUAL FUNDS WITH THE BANKS Banks v/s Mutual Funds BANKS Returns Administrative exp.Of every month Guarantee Max Rs. thus contributing to liquidity and price discovery. This increases the level of risk capital that is available in the economy for funding enterprise. The MFs also add depth to the security markets where they invest. 24 .&30th.1 lakh on deposits None Capital flow in the economy MFs make it possible for investors to assume risks in the expectation of the higher returns even if the investor cannot actively manage these investments and the associated risks. instead of this being locked up in unproductive physical capital like gold. This again is a significant factor in channelling more money into the markets. Risk Investment options Network Liquidity Quality of assets Interest calculation Low High Low Less High penetration At a cost Not transparent MUTUAL FUNDS Better Low Moderate More Low but improving Better Transparent Minimum balance between Everyday 10th.

a generic investment objective (e. The total outstanding units of a scheme multiplied by the face value of its units. constitutes the unit capital of the scheme. Investors in a scheme are essentially buying into this investment objective or philosophy. Thus investors invest in a scheme by buying its units. The total outstanding shares of a company multiplied by the face value of each share. In reality. Hence. Every scheme has an investment objective or philosophy i. constitutes the share capital of the company. the distinction among some of the stock fund objectives discussed is not clear-cut. What shares are for a company. units are for a mutual fund scheme. which may look like another company’s world fund. The actual stocks that constitute a specific mutual fund portfolio depend on the analysis and perspective of the fund’s manager. People invest in a company by acquiring its shares. It is important to read the fund’s prospectus and review the list of its top holdings before making your final investment decision.g.e. 25 . a promise by the AMC on how the funds would be managed. growth. they disinvest by selling its shares.Mutual fund Schemes and Units Investment in a company is normally represented by a certain number of shares. They disinvest by selling its units. One company’s aggressive growth fund may look like another company’s specialty fund. income) can be interpreted and executed differently by different managers.

The institution has grown immensely since its inception and today it is India's largest bank.The fund traces its lineage to SBI . In the process it has rewarded it’s investors handsomely with consistently high returns.Mutual fund COMPANY PROFILE: STATE BANK OF INDIA SBI Mutual Fund is India’s largest bank sponsored mutual fund and has an enviable track record in judicious investments and consistent wealth creation. SBI Mutual is the first bank-sponsored fund to launch an offshore fund – Resurgent India Opportunities Fund. A total of over 3.5 million investors have reposed their faith in the wealth generation expertise of the Mutual Fund. 26 . Today.India’s largest banking enterprise. the fund has launched thirty-two schemes and successfully redeemed fifteen of them. 33 investor service desks and 52 district organizers. 26 investor service centers. patronised by over 80% of the top corporate houses of the country. 20000 crores of assets and has a diverse profile of investors actively parking their investments across 40 active schemes.The fund serves this vast family of investors by reaching out to them through network of over 100 points of acceptance. Schemes of the Mutual fund have consistently outperformed benchmark indices and have emerged as the preferred investment for millions of investors and HNI’s. Growth through innovation and stable investment policies is the SBI MF credo. the fund manages over Rs. In eighteen years of operation.

services etc. Business Objectives. The Primary Objective of SBI Mutual Fund is to Enhance the Investments in the country through the Provision of Different Mutual Fund Schemes in a systematic and Professional Manner. and to Promote the Investments In the Mutual Fund SBI Mutual Fund Main goals are to a) Develop a Close Relationship with Customer b) Transform Ideas in to Viable and Creative Solutions c) Provide Consistently high Returns to Shareholders. and consistencyThe SBI Mutual Fund is Committed to maintain the highest level of ethical standards. Business Focus SBI Mutual Fund mission is to be world class Mutual Fund its Main aim is to build . Customer Franchises across distinct business So as to be the Preferred Provider of services in the SegmentsThat Fund Operates in and to achieve healthy growth in profitability. new schemes. professional integrity and regulatory compliance 27 . d) To Grow through diversification by leveraging off the existing client base.Mutual fund IMPORTANCE OF SBI MUTUAL FUND 1) SBI Mutual Fund helps in introducing a high degree of professional management and marketing concept in to banking 2) SBI Mutual Fund creates Healthy competition on general efficiency levels in the industry 3) SBI Mutual Fund is always trying to innovate the new products avenues.

Magnum COMMA Fund. At the same time the expected returns from debt funds would be lower. Diversified Equity Funds invest in various stocks across different sectors while sectoral funds which are specialized Equity Funds restrict their investments only to shares of a particular sector and hence. Government Securities and Money Market instruments either completely avoiding any investments in the stock markets as in Income Funds or Gilt Funds or having a small exposure to equities as in Monthly Income Plans or Children's Plan. Sectoral Funds and Index Funds. are riskier than Diversified Equity Funds. 28 . Index Funds invest passively only in the stocks of a particular index and the performance of such funds move with the movements of the index. 2 DEBT SCHEMES Debt Funds invest only in debt instruments such as Corporate Bonds.Mutual fund S. However they are also exposed to the volatility and attendant risks of stock markets and hence should be chosen only by such investors who have high risk taking capacities and are willing to think long term.I MUTUAL FUND SCHEMES EQUITY SCHEMES The investments of these schemes will predominantly be in the stock markets and endeavor will be to provide investors the opportunity to benefit from the higher returns which stock markets can provide. Hence they are safer than equity funds. Equity Funds include diversified Equity Funds.Magnum Equity Fund. Such investments are advisable for the risk-averse investor and as a part of the investment portfolio for other investors.B.

Mutual fund Magnum Children`s Benefit Plan Magnum Gilt Fund  Magnum Gilt Fund (Long Term)  Magnum Gilt Fund (Short Term) SBI Premier Liquid Fund BALANCED SCHEMES Magnum Balanced Fund invest in a mix of equity and debt investments. They provide a good investment opportunity to investors who do not wish to be completely exposed to equity markets. Minimum Investment Rs. PCDs and FCDs from selected industries with high growth potential and Bonds. Hence they are less risky than equity funds. Magnum Balanced Fund Magnum NRI Investment Fund .FlexiAsset Plan SBI EQUITY SCHEMES DETAILS  MAGNUM GLOBAL FUND Investment Objective To provide the investors maximum growth opportunity through well researched investments in Indian equities. ^ Money Market Instruments will 29 . 2. but is looking for higher returns than those provided by debt funds. but at the same time provide commensurately lower returns. 2000 and in multiples of Rs. Scheme Highlights 1.An open-ended equity scheme investing in stocks from selected industries with high growth potential. 1000 with Dividend and Growth options available.

Repos.25% Investments of Rs. usance bills and any other such short-term instruments as may be allowed under the regulations prevailing from time to time. Certificate of Deposit. This Plan will have two options (a) Quarterly Dividend option and (b) Growth option The Long Term Plan Dividend Plan and the Growth Plan will each have 30 . call or notice money. Treasury Bills. 5 crores . Open ended Gilt Scheme.2.Mutual fund include Commercial Paper. The scheme will invest in government securities only with the exception of investments made in the call money markets. Investments of Rs 5 crores and above . Government securities having an unexpired maturity of less than 1 year.5 crores and above – NIL Exit Load Investments below Rs 5 crores <= 6 months .NIL SBI GILT FUND DETAILS  SBI MAGNUM GILT FUND Investment Objective To provide the investors with returns generated through investments in government securities issued by the Central Government and / or a State Government Scheme Highlights 1.1.00% and NIL thereafter.for investors with a long-term investment horizon. Bills Rediscounting. 2. LongTerm Plan . 1994 Entry Load Investments below Rs. Commercial Bills. Investment in Government Securities signifies no risk of default (zero credit risk) either in payment of principal or even interest on the investments made by the scheme. Launch Date:September 30.

25% to the NAV. 2003 SBI BALANCED FUND Investment Objective To provide investors long term capital appreciation along with the liquidity of an open-ended scheme by investing in a mix of debt and equity.Mutual fund three options for investment 1. Indian Corporates. 2. An open-ended scheme investing in a mix of debt and equity instruments. Scheme open for Resident Indians. Both the Plans will have separate investment portfolios and separate NAVs. The scheme will invest in a diversified portfolio of equities of high growth companies and balance the risk through investing the rest in a relatively safe portfolio of debt. 2. 3. On an ongoing basis. 2 years or 3 years from the date of their investment Facility to reinvest dividend is available under both the Plans. Launch Date: January 1. magnums will be allotted at an entry load of 2. Trusts. the funds will normally be managed to an average portfolio-maturity longer than three years. Investors get the benefit of high expected-returns of equity investments with the safety of debt investments in one scheme. Overseas Corporate Bodies. Scheme Highlights 1. 31 . Under the Long-Term Plan. PF (Regular) Option : This option under both the Dividend and Growth Plans would be a no-load option. 3. PF (Fixed Period) Option : This option under both the Dividend and Growth Plan provides prospective investors with an option to lock-in their investments for a period of 1 year. on a fully repatriable basis for NRIs and.25% for exit within 90 days from the date of investment. Regular Dividend / Growth Option : This option will be the existing option in this Plan wherein investments in this option would be subject to a Contingent Deferred Sales Charge (CDSC) of 0.

7. Launch Date: May 1. 1996 32 . Nomination facility available for individuals applying on their behalf either singly or jointly upto three. The scheme will declare NAV. Switchover facility to any other open-ended schemes of SBI Mutual Fund at NAV related prices. 5. Sale and repurchase price on a daily basis. Facility to reinvest dividend proceeds into the scheme at NAV available.Mutual fund 4. 6.

com www.Mutual fund BIBLIOGRAPHY Mutual Fund Insight by Value etc 33 .indiainfoline.sbimf. Marketing Management by Philip Kotler www.

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