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Assignment: MANAGEMENT OF FINANCIAL SERVICES All Questions are compulsory
1) What do you mean by Money market? Explain the different types of participants and traded instruments in Money market. 2) What do you mean by Mutual Fund? Explain the different types of products / schemes offered by Mutual funds in India. *********************************************************************** Q1) What do you mean by Money market? Explain the different types of participants and traded instruments in Money market. A1) The Money Market is a component of the financial markets for assets involved in short-term borrowing and lending with original maturities of one year or shorter time frames. Trading in the money markets involves Treasury bills, commercial paper, bankers' acceptances, certificates of deposit, federal funds, and short-lived mortgagebacked and asset-backed securities. It provides liquidity funding for the global financial system. The money market consists of financial institutions and dealers in money or credit who wish to either borrow or lend. Participants borrow and lend for short periods of time, typically up to thirteen months. Money market trades in short-term financial instruments commonly called "paper." This contrasts with the capital market for longerterm funding, which is supplied by bonds and equity. The core of the money market consists of banks borrowing and lending to each other, using commercial paper, repurchase agreements and similar instruments. These instruments are often benchmarked to (i.e. priced by reference to) the London Interbank Offered Rate (LIBOR) for the appropriate term and currency. Finance companies, such as GMAC, typically fund themselves by issuing large amounts of asset-backed commercial paper (ABCP) which is secured by the pledge of eligible assets into an ABCP conduit. Examples of eligible assets include auto loans, credit card receivables, residential/commercial mortgage loans, mortgage-backed securities and similar financial assets. Certain large corporations with strong credit ratings, such as General Electric, issue commercial paper on their own credit. Other large corporations arrange for banks to issue commercial paper on their behalf via commercial paper lines. The money market is the arena in which financial institutions make available to a broad range of borrowers and investors the opportunity to buy and sell various forms of shortterm securities. The money market is not a physical place, but an informal network of banks and traders linked by telephones, fax machines, and computers. The short-term debts and securities sold on the money markets which are known as money market instruments have maturities ranging from one day to one year and are extremely liquid. Some examples of common money market instruments include treasury bills, federal agency notes, certificates of deposit (CDs), Eurodollar deposits, commercial paper, bankers' acceptances, and repurchase agreements. The suppliers of funds for 1|Page
But. Even though the distant future may be clouded. The Central Bank is an organ of the government which participates in the financial market in different ways. The money market is typically seen as a safe place to put money due the highly liquid nature of the securities and short maturities. It is one of the major participants in the money market because it also participates in a big way in the market to purchase and sell various securities specifically those issued by the government." The money market is used by a wide array of participants. from a company raising money by selling commercial paper into the market to an investor purchasing CDs as a safe place to park money in the short term. These are: 2|Page . participating in the money market through dealers. and the fortunes of companies can change rather rapidly. they are still not entirely risk free. which are professionally.SVKM¶s Narsee Monjee Institute of Management Studies (NMIMS) School of Distance Learning money market instruments are institutions and individuals with a preference for the highest liquidity and the lowest risk. Brealey and Stewart C. It regulates and makes policy relating to monetary management in the country. while themselves selling cheaper paper. It serves as the government bank because it performs the major financial operations of the government. Trading companies often purchase bankers' acceptances to be tendered for payment to overseas suppliers. you can usually be confident that a particular company will survive for at least the next month. banks do sometimes fail. managed mutual funds consisting only of short-term securities. only well-established companies can borrow in the money market. Second. Thus you will consider only blue-chip borrowers. as Richard A. "the range of possible outcomes is less for short-term investments. The money market is important for businesses because it allows companies with a temporary cash surplus to invest in short-term securities. you can't afford to spend too much time in evaluating the loan. and it also allows companies with a temporary cash shortfall to sell securities or borrow funds on a short-term basis. Small businesses. Merchant Banks Participants in the Money Market: 1) Central Bank: The Central bank of any country is the apex monetary institution in the money market. often choose to invest in money-market funds. Large corporations generally handle their own short-term financial transactions. In essence. Although securities purchased on the money market carry less risk than long-term debt. it acts as a repository for short-term funds. If you are going to lend money for only one day. which seek to buy higher yielding paper. Retail and institutional money market funds Banks Central banks Cash management programs Arbitrage ABCP conduits. but there are risks in the market that any investor needs to be aware of including the risk of default on securities such as commercial paper. After all. Myers explained in their book Principles of Corporate Finance. on the other hand.
It also performs such functions of the Government Departments. E. London money market. land. Discount Houses play a significant role in the business world. etc. They play a significant role in providing more liquidity in the money market through borrowing short term loans from the banks and lending the same to the traders. They also lend money by mortgaging immovable property like houses. Money lenders are normally referred to those persons whose main business is to provide financial assistance to rural farmers. The main technique of their financing is discounting of hundies and bills. It is very difficult to draw a line between the money lenders and the indigenous bankers. etc. Government Boards and Public Undertakings. and other government securities. The rate of interest charged by them is normally very high in comparison to the banks. 4) Acceptance Houses: These are another important participant in the money market. oil seeds. Especially in unorganized sector. These houses are normally found in the developed money market. advances. They assist the market making more liquid by discounting the trade bills. There are about 12 Discount Houses in London Money Market. commercial bills. By maintaining adequate forex reserve for meeting the requirements of foreign trade and servicing of foreign debts. Besides discounting they also invest in T-Bills. they sell these bills to commercial banks to raise funds so that they can facilitate this service further to the traders. 2) Indigenous Financial Agencies: They are important participants in the money market. By working as an agent and an adviser of the government specifically concerning to the financial matters such as loans. artisans and others. And by endorsing these bills. By acting as a banker¶s bank in the financial market the Central Bank regulates the banking operations in the country. The basic function of these agencies is to provide usually short term loans to both urban as well as rural borrowers which include the movement of agricultural commodities such as cotton. The organizational structure of these houses is very simple. They work independent of other FI¶s. servicing of debts. They usually rely on borrowed funds. They 3|Page . It also ensures the stability of the currency at international level. 3) Discount Houses: They are important constituents of money market. bonds and certificates issued by the local authorities and public corporations.SVKM¶s Narsee Monjee Institute of Management Studies (NMIMS) School of Distance Learning By issuing of currency notes which is directly and solely under the purview of the Central Bank. Their main activities are concerned with discounting of trader¶s bills therefore the size of capital is relatively small. sugar. etc. They also provide guarantee to the bankers for payment of bills on maturity by the traders. Indigenous Bankers is referred to an individual or private firm receiving deposits and dealing in hundies or lending money. Hence the major portion of earnings of these houses is derived from commission received on discounting of the trade bills and interest accrued on investment. Normally they are set up in public limited company form and the number of persons employed by them is not very large. The major function of these houses is to discount trade bills to provide adequate liquidity in the market. They comprise of money lenders and indigenous bankers.g.
while the annual types are auctioned monthly. Short-term notes issued by municipalities in anticipation of tax receipts or other revenues. Treasury bills . government.S. T-bills for noncompetitive bids are supplied at the average price of all successful competitive bids. (ii)FEDERAL AGENCY NOTES: Some agencies of the federal government issue both short-term and long-term obligations. usually on an overnight basis. For the U.S.). They are lent for the federal funds rate. Federal agency short-term securities . They come in three different lengths to maturity: 90..).Time deposits.Unsecured promissory notes with a fixed maturity of one to 270 days.).(in the U. Repurchase agreements .S.S. Purchasers of T-bills at auction can enter a competitive bid (although this method entails a risk that the bills may not be made available at the bid price) or a noncompetitive bid. and 360 days. Interest-bearing deposits held by banks and other depository institutions at the Federal Reserve. 180. Common money market instruments are: Certificate of deposit . dollars at a bank or bank branch located outside the United States.S. and credit unions.SVKM¶s Narsee Monjee Institute of Management Studies (NMIMS) School of Distance Learning accept the Bills of Exchange which are drawn on them either by the seller or the buyer of the goods so that the accepted bills can further be discounted from the discount house. these are immediately available funds that institutions borrow or lend.(in the U. T-bills can be purchased directly through the auctions or indirectly through the secondary market. including the loan agencies Fannie Mae and Sallie 4|Page . Short-term securities issued by government sponsored enterprises such as the Farm Credit System. see Treasury bills. Federal funds .Exchanging a set of currencies in spot date and the reversal of the exchange of currencies at a predetermined time in the future. Commercial paper . usually sold at a discount from face value. commonly offered to consumers by banks. the Federal Home Loan Banks and the Federal National Mortgage Association. thrift institutions. Money funds . Municipal notes . Short-lived mortgage-backed and asset-backed securities Some Money Market Instruments explained below: (i)TREASURY BILLS: Treasury bills (T-bills) are short-term notes issued by the U.Deposits made in U.(in the U.S. The two shorter types are auctioned on a weekly basis. It is an important organ of a developed money market.Pooled short maturity. Foreign Exchange Swaps .Short-term loans²normally for less than two weeks and frequently for one day²arranged by selling securities to an investor with an agreement to repurchase them at a fixed price on a fixed date. Eurodollar deposit .Short-term debt obligations of a national government that are issued to mature in three to twelve months. high quality investments which buy money market securities on behalf of retail or institutional investors.
Brokerage firms have a nationwide pool of bank CDs and receive a fee for selling them. and in exchange the bank agrees to repay the money with specified interest at the end of the time period. There is usually a penalty for early withdrawal of funds. Agency securities are actively traded. For this reason. credit-worthy corporations with unused lines of bank credit and therefore carries low default risk. Corporations are major purchasers of this type of money market instrument. There are also Eurodollar CDs. Issuers earning the lowest ratings find few willing investors. An individual or company lends the bank a certain amount of money for a fixed period of time.SVKM¶s Narsee Monjee Institute of Management Studies (NMIMS) School of Distance Learning Mae.S. However. brokered CDs generally pay higher interest rates and offer greater liquidity than CDs purchased directly from a bank. Banks may act 5|Page . They are one of several types of interest-bearing "time deposits" offered by banks. Large denomination (jumbo) CDs of $100. (iii)SHORT-TERM TAX EXEMPTS: These instruments are short-term notes issued by state and municipal governments. Although they carry somewhat more risk than T-bills and tend to be less negotiable. such certificates are insured by the FDIC only up to $100. in which banks act as intermediaries between buyers and sellers. The maturity rates on CDs range from 30 days to six months or longer. but are not quite as marketable as T-bills. Commercial paper has maturities of up to 270 days (the maximum allowed without SEC registration requirement).000.000 or more are generally negotiable and pay higher interest than smaller denominations. "By cutting out the intermediary. Since brokers deal in large sums. and the amount of the face value can vary greatly as well. which are negotiable certificates issued against U. commercial paper is issued directly by wellestablished companies. A2 and P2 paper is considered high quality. as well as by financial institutions. The certificate constitutes the bank's agreement to repay the loan. The highest ratings are A1 and P1. These obligations are not generally backed by the government. It is typically issued by large. respectively. they feature the added benefit that the interest is not subject to federal income tax. Unlike some other types of money-market instruments. but the risk of default is still very small. (v)COMMERCIAL PAPER: Commercial paper refers to unsecured short-term promissory notes issued by financial and nonfinancial corporations. major companies are able to borrow at rates that may be 1 to 1 ½ percent below the prime rate charged by banks. dollar obligations in a foreign branch of a domestic bank. Standard and Poor's and Moody's provide ratings regarding the quality of commercial paper. (iv)CERTIFICATES OF DEPOSIT: Certificates of deposit (CDs) are certificates issued by a federally chartered bank against deposited funds that earn a specified return for a definite period of time. but some types of CDs can be sold to another investor if the original purchaser needs access to the money before the maturity date. Dollar volume for commercial paper exceeds the amount of any money market instrument other than T-bills. so they offer a slightly higher yield than T-bills." according to Brealey and Myers. but usually indicates that the issuing corporation is smaller or more debt burdened than A1 and P1 companies. corporations find that the lower yield is worthwhile on this type of short-term investment.
SVKM¶s Narsee Monjee Institute of Management Studies (NMIMS) School of Distance Learning as agents in the transaction. Thus call money usually serves the role of equilibrating the short-term liquidity position of banks. Call Money Market Participants include those who can both borrow as well as lend in the market ." Berkley and Myers noted. they are very similar to bank deposit accounts. The loans are of short-term duration varying from 1 to 14 days. where the day-to-day surplus funds (mostly of banks) are traded. (vii)REPURCHASE AGREEMENTS: Repurchase agreements also known as repos or buybacks are Treasury securities that are purchased from a dealer with the agreement that they will be sold back at a future date for a higher price. This security can then be bought or sold at a discount slightly greater than the discount on Treasury bills of the same maturity. The money that is lent for one day in this market is known as "Call Money". Banks borrow in this money market for the following purpose: y y y y y To fill the gaps or temporary mismatches in funds To meet the CRR & SLR mandatory requirements as stipulated by the RBI. To meet sudden demand for funds arising out of large outflows. In fact. Companies may also sell commercial paper through dealers who charge a fee and arrange for the transfer of the funds from the lender to the borrower. PDs. These agreements are the most liquid of all money market investments. The maturity of acceptances ranges from one to six months. 6|Page . the draft becomes the bank's IOU and is a negotiable security." Bankers' acceptances are generally used to finance foreign trade. ranging from 24 hours to several months. and many corporations arrange for their banks to transfer excess cash to such funds automatically. and if it exceeds one day (but less than 15 days) it is referred to as "Notice Money". Q2) What do you mean by Mutual Fund? Explain the different types of products / schemes offered by Mutual funds in India. Once accepted.RBI (through LAF) Banks. (vi)BANKERS' ACCEPTANCES: "A banker's acceptance begins life as a written demand for the bank to pay a given sum at a future date. "The bank then agrees to this demand by writing 'accepted' on it. although they also arise when companies purchase goods on credit or need to finance inventory. but they assume no principal position and are in no way obligated with respect to repayment of the commercial paper. (viii)CALL MONEY/ NOTICE MONEY/ TERM MONEY: The call money market is an integral part of the Indian Money Market. Term Money refers to Money lent for 15 days or more in the Interbank Market.
by minimizing risk & maximizing returns. 7|Page . The flow chart below describes broadly the working of a mutual fund: Mutual Fund Operation Flow Chart A mutual fund is just the connecting bridge or a financial intermediary that allows a group of investors to pool their money together with a predetermined investment objective. debentures and other securities. bonds. thus by pooling money together in a mutual fund. professionally managed basket of securities at a relatively low cost. The money thus collected is then invested in capital market instruments such as shares. When you invest in a mutual fund. all in the best interests of the fund's investors. you are buying units or portions of the mutual fund and thus on investing becomes a shareholder or unit holder of the fund. Thus a Mutual Fund is the most suitable investment for the common man as it offers an opportunity to invest in a diversified.. other mutual funds. In the U. But the biggest advantage to mutual funds is diversification. A mutual fund is a professionally managed type of collective investment scheme that pools money from many investors and invests typically in investment securities (stocks. a fund registered with the Securities and Exchange Commission (SEC) under both SEC and Internal Revenue Service (IRS) rules must distribute nearly all of its net income and net realized gains from the sale of securities (if any) to its investors at least annually. investors can purchase stocks or bonds with much lower trading costs than if they tried to do it on their own.S. Most funds are overseen by a board of directors or trustees (if the U.S. Mutual funds are considered as one of the best available investments as compare to others they are very cost efficient and also easy to invest in. other securities. fund is organized as a trust as they commonly are) which is charged with ensuring the fund is managed appropriately by its investment adviser and other service organizations and vendors. The income earned through these investments and the capital appreciation realized is shared by its unit holders in proportion to the number of units owned by them. and/or commodities such as precious metals.SVKM¶s Narsee Monjee Institute of Management Studies (NMIMS) School of Distance Learning A2) A Mutual Fund is a trust that pools the savings of a number of investors who share a common financial goal. short-term money market instruments. The mutual fund will have a fund manager who is responsible for investing the gathered money into specific securities (stocks or bonds). The mutual fund will have a fund manager that trades (buys and sells) the fund's investments in accordance with the fund's investment objective.
fund managers don't consider your personal tax situation. The mutual fund industries are thus charging extra cost under layers of jargon. Liquidity . When money pours into funds that have had strong success.Because funds have small holdings across different companies. For example. risk tolerance and return expectations etc. The table below gives an overview into the existing types of schemes in the Industry: 8|Page . 2. a capital-gain tax is triggered. Disadvantages of Investing Mutual Funds: 1. high returns from a few investments often don't make much difference on the overall return.Just like an individual stock. which affects how profitable the individual is from the sale. as their management is not dynamic enough to explore the available opportunity in the market. Economies of Scale . Costs ± The biggest source of AMC income is generally from the entry & exit load which they charge from investors. at the time of purchase. Diversification . Professional Management.The basic advantage of funds is that. they are professional managed. Dilution is also the result of a successful fund getting too big. 4. Investors purchase funds because they do not have the time or the expertise to manage their own portfolio. the investors risk is spread out and minimized up to certain extent. and help to bring down the average cost of the unit for their investors. thus help to reducing transaction costs. 3.Purchasing units in a mutual fund instead of buying individual stocks or bonds. 3. when a fund manager sells a security. 4. by well qualified professional. thus many investors debate over whether or not the so-called professionals are any better than mutual fund or investor him self. the manager often has trouble finding a good investment for all the new money.SVKM¶s Narsee Monjee Institute of Management Studies (NMIMS) School of Distance Learning Advantages of Investing Mutual Funds: 1.Mutual fund buy and sell large amounts of securities at a time. It might have been more advantageous for the individual to defer the capital gains liability. for picking up stocks. mutual fund also allows investors to liquidate their holdings as and when they want. Dilution . Taxes . A mutual fund is considered to be relatively less expensive way to make and monitor their investments. The idea behind diversification is to invest in a large number of assets so that a loss in any particular investment is minimized by gains in others. Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial position. Professional Management . 2.Some funds doesn¶t perform in neither the market.when making decisions about your money.
Being a collection of many stocks. 2. an investors can go for picking a mutual fund might be easy. SEBI Regulations ensure that at least one of the two exit routes is provided to the investor. One can invest directly in the scheme at the time of the initial issue.SVKM¶s Narsee Monjee Institute of Management Studies (NMIMS) School of Distance Learning By Structure: Open .Ended Schemes: An open-end fund is one that is available for subscription all through the year. These do not have a fixed maturity. 9|Page . Alternatively some close-ended schemes provide an additional option of selling the units directly to the Mutual Fund through periodic repurchase at the schemes NAV. mentioned below. Overview of existing schemes existed in mutual fund category: BY STRUCTURE : 1. The market price at the stock exchanges could vary from the net asset value (NAV) of the scheme on account of demand and supply situation. Investors can transact (buy or sell) the units of the scheme on the stock exchanges where they are listed. Open . Investors can conveniently buy and sell units at Net Asset Value ("NAV") related prices.Ended Schemes Close . however one cannot buy units and can only sell units during the liquidity window. There are over hundreds of mutual funds scheme to choose from. It is easier to think of mutual funds in categories. The key feature of open-end schemes is liquidity. thus mutual funds has Variety of flavors. expectations of unit holder and other market factors.Ended Schemes: These schemes have a pre-specified maturity period.Ended Schemes Interval Schemes By Investment Objective: Growth Schemes Income Schemes Balanced Schemes Money Market Schemes Other Schemes: Tax Saving Schemes Special Schemes Index Schemes Sector Specific Schemes Types of Mutual Funds Schemes in India : Wide variety of Mutual Fund Schemes exists to cater to the needs such as financial position. Close . Depending on the structure of the scheme there are two exit options available to an investor after the initial offer period closes. risk tolerance and return expectations etc.
Thus investors choose mutual funds as their primary means of investing.SVKM¶s Narsee Monjee Institute of Management Studies (NMIMS) School of Distance Learning 3. Interval Schemes: Interval Schemes are that scheme. Hedge fund involves a very high risk since it is mostly traded in the derivatives market which is considered very volatile. as Mutual funds provide professional management. The risk return trade-off indicates that if investor is willing to take higher risk then correspondingly he can expect higher returns and vise versa if he pertains to lower risk instruments. which combines the features of open-ended and closeended schemes. which provide moderate return with minimal risk. That doesn¶t mean mutual fund investments risk free. This is because the money that is pooled in are not invested only in debts funds which are less riskier but are also invested in the stock markets which involves a higher risk but can expect higher returns. which would be satisfied by lower returns. The units may be traded on the stock exchange or may be open for sale or redemption during pre-determined intervals at NAV related prices. if an investors opt for bank FD. Overview of existing schemes existed in mutual fund category: BY NATURE : 10 | P a g e . diversification. convenience and liquidity. For example. But as he moves ahead to invest in capital protected funds and the profit-bonds that give out more return which is slightly higher as compared to the bank deposits but the risk involved also increases in the same proportion.
These schemes invest in short-term instruments like Treasury Bills. Equity fund: These funds invest a maximum part of their corpus into equities holdings. These funds primarily invest in short term papers like Certificate of Deposits (CDs) and Commercial Papers (CPs): Some portion of the corpus is also invested in corporate debentures. these funds ensure low risk and provide stable income to the investors. These funds are meant for short-term cash management of corporate houses and are meant for an investment horizon of 1day to 3 months. These Funds carry zero Default risk but are associated with Interest Rate risk. Income Funds: Invest a major portion into various debt instruments such as bonds. The Equity Funds are sub-classified depending upon their investment objective. banks and financial institutions are some of the major issuers of debt papers. corporate debentures and Government securities. These funds provides easy liquidity and preservation of capital. These schemes are safer as they invest in papers backed by Government. The structure of the fund may vary different for different schemes and the fund manager¶s outlook on different stocks. inter-bank call money market. These scheme ranks slightly high on the risk-return matrix when compared with other debt schemes. 3. Debt funds: The objective of these Funds is to invest in debt papers. These schemes rank low on risk-return matrix and are considered to be the safest amongst all categories of mutual funds. thus Equity funds rank high on the risk-return matrix. are a mix of both equity and debt funds.SVKM¶s Narsee Monjee Institute of Management Studies (NMIMS) School of Distance Learning 1. popularly known as Government of India debt papers. Government authorities. MIPs: Invests maximum of their total corpus in debt instruments while they take minimum exposure in equities. Debt funds are further classified as: Gilt Funds: Invest their corpus in securities issued by Government. as follows: Diversified Equity Funds Mid-Cap Funds Sector Specific Funds Tax Savings Funds (ELSS) Equity investments are meant for a longer time horizon. private companies. Balanced funds: As the name suggest they. Short Term Plans (STPs): Meant for investment horizon for three to six months. They invest in both 11 | P a g e . 2. It gets benefit of both equity and debt market. Liquid Funds: Also known as Money Market Schemes. CPs and CDs. By investing in debt instruments.
Index Schemes: Index schemes attempt to replicate the performance of a particular index such as the BSE Sensex or the NSE 50. The portfolio of these schemes will consist of only those stocks that constitute the index. These schemes generally invest in safer. These schemes aim to provide investors with the best of both the worlds. The investor can align his own investment needs with the funds objective and invest accordingly. These schemes invest in both shares and fixed income securities. Pharmaceuticals. The aim of these schemes is to provide regular and steady income to investors. BY INVESTMENT OBJECTIVE : 1) Growth Schemes: Growth Schemes are also known as equity schemes. E. And hence. Fast 12 | P a g e . preservation of capital and moderate income. The percentage of each stock to the total holding will be identical to the stocks index weightage. in the proportion indicated in their offer documents (normally 50:50). Under Sec. short-term instruments. Equity part provides growth and the debt part provides stability in returns. Sector Specific Schemes: These are the funds/schemes which invest in the securities of only those sectors or industries as specified in the offer documents. The aim of these schemes is to provide capital appreciation over medium to long term. commercial paper and inter-bank call money. the returns from such schemes would be more or less equivalent to those of the Index. 4) Money Market Schemes: Money Market Schemes aim to provide easy liquidity. Each category of funds is backed by an investment philosophy. which are in line with pre-defined investment objective of the scheme. These schemes normally invest a major part of their fund in equities and are willing to bear short-term decline in value for possible future appreciation. These schemes generally invest in fixed income securities such as bonds and corporate debentures. Capital appreciation in such schemes may be limited. Other schemes Tax Saving Schemes : Tax-saving schemes offer tax rebates to the investors under tax laws prescribed from time to time. which is pre-defined in the objectives of the fund. such as treasury bills. contributions made to any Equity Linked Savings Scheme (ELSS) are eligible for rebate. Software. 3) Balanced Schemes: Balanced Schemes aim to provide both growth and income by periodically distributing a part of the income and capital gains they earn.SVKM¶s Narsee Monjee Institute of Management Studies (NMIMS) School of Distance Learning equities and fixed income securities.g. 2) Income Schemes: Income Schemes are also known as debt schemes. certificates of deposit. Further the mutual funds can be broadly classified on the basis of investment parameter via.88 of the Income Tax Act.
If the fund sells securities that have increased in price. If fund holdings increase in price but are not sold by the fund manager. Most funds also pass on these gains to investors in a distribution. Funds will also usually give you a choice either to receive a check for distributions or to reinvest the earnings and get more shares. where the total returns provided by mutual funds can be enjoyed by investors: Income is earned from dividends on stocks and interest on bonds. etc. Working of Mutual Fund 13 | P a g e . the fund has a capital gain. While these funds may give higher returns. they are more risky compared to diversified funds. A fund pays out nearly all income it receives over the year to fund owners in the form of a distribution. the fund's shares increase in price. Types of returns There are three ways. Investors need to keep a watch on the performance of those sectors/industries and must exit at an appropriate time. You can then sell your mutual fund shares for a profit. The returns in these funds are dependent on the performance of the respective sectors/industries. Petroleum stocks.SVKM¶s Narsee Monjee Institute of Management Studies (NMIMS) School of Distance Learning Moving Consumer Goods (FMCG).
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