Mutual Fund

• An investment company that pools

money from its shareholders in order to
create a portfolio of investments for
the purpose of diversifying investment
risk and providing potential financial
benefit to its shareholders.”
 TYPES OF SECURITIES AND RISK

• Stocks - Generally do not guarantee any type of return, hence

more risky investment.

• Bonds - Generally can guarantee a return, hence less risky

investment.

“Greater the risk Greater the Return and Vice versa”

 Types of Equity Securities

 Common shares
 Preferred Shares
 American Depository Receipts (ADR)
 Rights
 Warrants
 Types of Bond Securities

 Government Bonds
 Municipal Bonds
 Corporate Bonds – Convertible Bonds, Callable Bonds, ……
 Zero-Coupon Bonds

Notes :
Government Bonds could be any of the following forms:
 Bills - debt securities maturing in less than one year.
 Notes - debt securities maturing in one to 10 years.
 Bonds - debt securities maturing in more than 10 years.
 MUTUAL FUND OBJECTIVES

• Growth - A diversified portfolio of stocks that has capital

appreciation as its primary goal, with little or no dividend
payouts.
• Income - A type of mutual fund that emphasizes current
income, either on a monthly or quarterly basis, as opposed to
capital appreciation.
• Balanced - A blend of stocks and bonds. Includes balanced,
targeted and life-cycle type funds
 Parties Involved In MF Industry

 Board of Directors
Overseas the fund and makes strategic business decisions
Verify compliance with SEC and other regulatory standards.
 Distributor
License to Sell shares of the mutual fund
Broker/Dealer in Band Selling of Shares of a mutual fund
 Transfer Agency
Maintains the records of Individual shareholders
Calculates and Distributes Income and capital gain to shareholders
 Custodian
Safe Keeper of fund’s Assets
Responsible for receipt and delivery of Fund’s Securities and Cash
 Parties Involved In MF Industry

 Investment Advisor
Responsible for making sound investment decisions in order to meet
investment objective of the Mutual fund.
 Fund Administrator
Maintain and updates the records of the mutual fund company
Produces Fund reports and financial statements
Calculates and files tax
Monitors fund compliance reporting.
 Fund Accountant
 Maintains the book and records of the fund
 Calculate and monitors daily net asset value.
 Provide fund data for Internal and External Business partners
 Responsibilities of Fund Acct

Balance and reconcile Fund Cash with Custodian

Balance Shareholder Activity
Review Trade Activity
Review and Verify Corporate action Events
Justify Income and Expense Accruals
Pre-Justification
Maintain Custody/Position Reconciliation
Pricing & Final Justification
Calculate NAV
Macro View on Fund Accounting
 Net Asset Value
• Price of one share of the mutual fund is referred to as its Net asset value.
This is the price an investor will pay to acquire 1 share of a mutual fund.

• Net assets is calculated with the below formula:

Net Assets ( Assets – Liabilities ) / Shares Outstanding

• It is the responsibility of the FA to calculate and maintain the NAV daily.

• For most of the funds, NAV is calculated on daily basis and varies everyday.
 Events Impacting NAV

• Shareholder Purchase and sales

• Portfolio Purchase and sales
• Income
• Unrealized Gain/Loss on securities
• Expenses
• Distribution
 Money Market Fund

• Money Market Funds invests in short term, liquid and safe

securities generally,

• T-Bills
• Certificate of Deposits of Large Banks
• Commercial Papers

• NAV of a Money Market Fund Is always $1.00

 Key contents in Prospectus

• Name of the Company

• Type of a Fund
• Investment Objective
• Investment Strategy
• Investment Risk
• Performance
• Fees & Expenses
• Shareholder Information
• Management & Administration
 Loads in MF

• Front End Load : Sales charges are paid “Up Front” by the shareholder.
Public Offering Price (POP) = NAV + Load

• Back End Load : Sales charges are paid “At the end of the ownership” by the
shareholder. i.e. Contingent Deferred Sales Charges.

• No Load : These shares will require a Very Large Minimum Investment, and they
will waive sales.
 Advantages of MF

• Accessibility
• Low Initial Investment
• Partial Ownership
• Liquidity
• Growth
• Diversification
• Professional Management
• Flexibility
 How Investors Make money from MF

• Income Distribution – Distributes Earned Income through

dividends

• Capital Gain Distribution – Distributes Gain from sale of

securities in portfolio

• NAV Appreciation – Value of Investment in MF’s portfolio

increases or MF accumulates income, which causes the funds
NAV increases.
 Investone (SunGard)

• Accounting system used to process and maintain the Fund’s NAV

• Keys Used in SunGard:

 Home – Helps to send the cursor to top left corner to move to next screen
 Tab – Helps to send the cursor to next open field
 Control – Helps to send the cursor to next line
 Shift + Tab – Helps to send the cursor to previous open field.
 Esc – Helps to release the Error, when the user enters data in closed range.

Note : Using the mouse will not Guarantee the operator placement of the cursor in the correct
position for entry; This could cause the system to lock up like above. Therefore, Keyboard is the
most preferable option in Navigating the cursor inside the SunGard.
 Frequently used screens in SunGard

1. View Fund Balance :

5. Information Gathering :
• INGL
•DANA
• ANCF •VSDT
• STAS •SECEXP
• VNAV •GLIN
• AAFB
6. Pricing
• AAIN/GLTR/MSUM
2. Trade Entry : • PNOT
• DETE/DATE/VSTE/DDTD • VSPR
• DEFT/DAFT/VSFT/DDFT • VSPSX
• DECCT/DACCT/VSCCT
7. Security Setup :
• BOBD
3. Corporate Action : • BOCA
• DECR/VSCR • STST/STSS

4. System Generators:
• BGTG/BGTGR
 Cash

• Cash Reporting – FA has to report the available cash to their respective IA

in order to determine the investments to buy or sell to meet the objective.
They will also sell the securities to meet some of the needs like
Liquidations, to buy attractive securities in market, Operational expenses,
fees that charged on account on overdraft, etc.

• Cash Reconciliation – Accountants must reconcile their cash totals with

the Custodian and report the daily cash figure for the IA. When the IA
makes a transaction, the Custodian will move or receive cash
appropriately and the Accountant will update the books and records of the
fund
 Cash Transactions
 Security Settlements:
• Security Sales –
• Security Purchases –
 Maturities –
 Interest Received –
 Dividends –
 Expenses –
 Income Distribution –
 Shareholder Activity :
• Purchases –
• Redemptions -
 Cash Balance Calculation

BEGINNING BALANCE

+/- SECURITY SETTLEMENTS

+ MATURITIES

+ INTEREST

+ CASH DIVIDENDS

- EXPENSES PAID

- INCOME DISTRIBUTIONS

+/- SHAREHOLDER WORK

= ENDING CASH BALANCE

 Cash Reconciliation

• The Cash Reconciliation sheet is used to document discrepancies between the Custodian and
Fund Accounting.
• It is performed daily to ensure both fund accounting and the custodians are moving the
proper amounts of money in the mutual fund.
• Before sending cash out to the IA, it is important to balance with the custodian because any
discrepancies may affect today’s cash balance.
• Reconciling to the custodian is much like reconciling a checking account to bank records.
• Some of the common errors that occur in a mutual fund that will show up on the cash
reconciliation:
 The custodian or fund account did not receive a trade from the advisor.
 The custodian did not post a dividend payment to the fund.
 The Transfer Agency wired a different amount of money to/from the custodian than fund accounting
entered into the system.
 A trade settled for a different amount with custody and fund accounting.
 An interest payment is posted to the fund for different amounts.
 COMPONENTS OF RECONCILIATION

• Fund Number/ Name

• Account Number
• Age
• Settlement Date
• Dr/Cr
• Currency
• Security Number / Description
• Transaction Code
• Outage Amount
• Reason Code
• Comment