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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 Has the responsibility of physical handling and safe keeping of the securities. Should be independent of the sponsors and registered with SEBI.
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. Open-end Vs. Aim to provide easy liquidity. Listed on stock exchange and investors can buy or sell units through the exchange. Have a higher risk of default by borrowers as compared to Gilt funds. money market instruments and other types of securities. less than one year maturity. Investors are not allowed to buy or redeem the units directly from the funds. Gilt Funds Invest in Gilts which are government securities with medium to long term maturities. Debt funds can be categorized further based . owner of a mutual fund unit gets a proportional share of the fund’s gains. preservation of capital and moderate income. typically over one year. Mutual Fund Types : Mutual Fund Types Money Market Funds/Cash Funds Invest in securities of short term nature I. losses. Closed-end Funds Open-end Fund Available for sale and repurchase at all times based on the net asset value (NAV) per unit. but also by private companies. Closed-end Funds Closed-end Fund One time sale of fixed number of units. Unit capital of the fund is not fixed but variable. Commercial Paper issued companies and inter-bank call money. Some funds offer repurchase after a fixed period. Virtually zero risk of default as it is backed by the Government. Fund size and its total investment go up if more new subscriptions come in than redemptions and viceversa.e. It is most sensitive to market interest rates. Target low risk and stable income for the investor. bonds. Certificates of deposit issued by banks. Closed-end Funds : Open-end Vs. Closed-end Funds : Open-end Vs.What is Mutual Fund? : What is Mutual Fund? Mutual fund is a investment tool that allows to invest in the equities. Debt Funds : Debt Funds Debt Funds/Income Funds Invest in debt instruments issued not only by government. Have higher price fluctuation as compared to money market funds due to interest rate fluctuation. The price falls when the interest rates goes up and vice-versa. bonds and other securities It pools the money of several investors and invests this in stocks. banks and financial institutions and other entities such as infrastructure companies/utilities. Gilt funds invest in government paper called dated securities. Invest in Treasury bills issued by government.
Objective is to gain income. preference and equity shares. Hybrid Funds : Hybrid Funds Balanced Funds: Has a portfolio comprising of debt instruments. commodities and real estate. . Risk is higher than debt funds but offer very high growth potential for the capital.which in turn will be favorable for the securities of that country. Equity funds can be further categorized based on their investment strategy. Almost equal proportion of debt/money market securities and equities. 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. Gold Exchange Traded Funds (ETFs) and Real Estate Investment Trusts (REITs) fall within the category of real asset funds. Ideal for investors with a conservative and long-term orientation.on their risk profiles. silver. 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. Real asset funds : Real asset funds These funds invest in physical assets such as gold. convertible securities. Equity funds must have a long-term objective. moderate capital appreciation and preservation of capital. oil. platinum. acquired directly in initial public offering or through secondary market and keep a part in cash to take care of redemptions. Carry both credit risk and interest rate risks. Equity Funds : Equity Funds Equity Funds: Invest a major portion of their corpus in equity shares issued by companies. Normally funds maintain a Equity-Debt ratio of 55:45 or 60:40.
Regulation : Regulation All the MF are registered with the SEBI.to five-days).1. Other Investments : Mutual Funds Vs. Other Investments Mutual Funds Vs. Affordability : Affordability The minimum initial investment for a mutual fund is fairly low for most funds (as low as Rs500 for some schemes. Receive the current market value on their investments within a short time period (normally three. Benefits of Investing Through Mutual Funds Professional Money Management : Professional Money Management Fund managers are responsible for implementing a consistent investment strategy . Liquidity : Liquidity Investors can sell their mutual fund units on any business day. Other Investments : Mutual Funds Vs. 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. Flexibility and variety : Flexibility and variety Investors can pick up the scheme depending upon the risk /return profile. Mutual funds offer investors an opportunity to diversify across assets. Other Investments . Fund managers monitor market and economic trends and analyze securities Diversification : Diversification Diversification is one of the best ways to reduce risk.
S. Mutual Funds are the best solution for people who want to manage risks and get good returns. The good thing about Mutual Funds is that you don’t have to pay attention to them. 4. Mutual Funds market is very evolved in U. Mutual funds also invest in debt securities which are relatively much safer. he invests at its existing NAV. In case of the stock market investing however. the calculation of which is based on the current market price of all the assets that the mutual fund owns. Equity Instruments like shares form only a part of the securities held by mutual funds. NAV).Mutual Funds Vs. 3. Other Investments Myths about Mutual Funds : Myths about Mutual Funds 1. 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 biggest advantage of Mutual Funds is their ability to diversify the risk. 2. 2. Mutual Funds invest only in shares. not its NAV when an investor invests in a mutual fund. 5.e. Facts about Mutual Funds : Facts about Mutual Funds 1.A and is there for the last 60 years. Mutual Funds are their in India since 1964. Mutual Funds are not reliable and people rarely invest in them. The investor buys the units at a price (i. 4. 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. not its NAV : Invest in the mutual fund. Mutual Funds are prone to very high risks/actively traded. There are various funds to suit investor needs. The truth is as an investor you should always pay attention to your mutual funds and continuously monitor them. This makes an investment decision based on the NAV potentially misguiding. . Facts about Mutual Funds : Facts about Mutual Funds 5. Mutual Funds are very new in the financial market. both as a long term investment vehicle or as a very short term cash management vehicle. 3. Path to knowledge & Wealth creation fromMutual Funds : Path to knowledge & Wealth creation fromMutual Funds Invest in the mutual fund. Other Investments : Mutual Funds Vs.
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 need to consider factors such : As an investor. 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. 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. own risk profile : own risk profile some equity funds adhere to the growth style of investment (aggressively managed funds). investors do continue to get lured by the catchy advertisement which boasts about the scheme’s past performance. So. Despite these disclaimers. . you need to consider factors such own risk profile the fund house’s management style the mutual fund’s performance.▪ As an investor. unit-linked insurance plan– ULIP. it must be evaluated based on the risk-return criterion. whenever they mention the past performance of a scheme.e. it is important for investors to select a fund that takes on risk in line with their own risk appetite. among others) with its comparable peer group while assessing whether or not you should invest in it. evaluating the investment option across any one of the two i. while others follow the value style of investment (conservatively managed funds). 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. You should compare an investment (be it a mutual fund. fixed deposit.
by making distributors disclose commissions (upfront and trail) to the investor.Past performance is not everything : Past performance is not everything Past performance fails to highlight the investment processes and approach. 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. making every initiative pro-investor. . Year 2010 for the Mutual Fund Industry : Year 2010 for the Mutual Fund Industry The year 2010. to do so is almost impossible. Also. Don’t time your mutual fund investments . 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. would continue to bring in reforms in the mutual fund industry. for instance).Take a SIP We all want to buy at the lows and sell at the highs.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. And yes. With SIPs.Take a SIP : Don’t time your mutual fund investments . An effective and a hassle-free way of investing regularly is through the SIP (Systematic Investment Plan) route. But. thus leading to an increase in the product offering to mutual fund investors. we believe. ideally one should enter the market when it is at lower levels and exit when it is at higher levels. 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. The potential for growth will come from inherent strengths and sustained interest by foreign and domestic funds as well as the common investor.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 . No one can predict where the markets are heading tomorrow. many new players are likely to enter the mutual fund space.
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