MutualFunds Krish

See discussions, stats, and author profiles for this publication at: https://www.researchgate.
net/publication/337021170
Mutual Funds
Presentation · November 2019
CITATIONS READS
0 2,605
1 author:
Mrunal Chetanbhai Joshi

B.R.C.M. College of Business Administration
63 PUBLICATIONS 49 CITATIONS
SEE PROFILE
Some of the authors of this publication are also working on these related projects:
Article 11 View project
Article 10 View project
All content following this page was uploaded by Mrunal Chetanbhai Joshi on 28 November 2020.
The user has requested enhancement of the downloaded file.

Mutual Funds
Dr. Mrunal Joshi
Assistant Professor,
Mutual Funds: Introduction
A Mutual Fund is a trust that pools the savings of a number of investors
who share a common financial goal. The money thus collected is then
invested in capital market instruments such as shares, debentures and
other securities. The income earned through these investments and the
capital appreciation realised are shared by its unit holders in proportion
to the number of units owned by them.
Dr. Mrunal Joshi B.R.C.M. College of Business Administration

FREQUENTLY USED TERMS IN MF
•Net Asset Value (NAV): Net Asset Value is the market value of the
assets of the scheme minus its liabilities. The per unit NAV is the net
asset value of the scheme divided by the number of units outstanding on
the Valuation Date.
•Sale Price: Is the price you pay when you invest in a scheme. Also called
Offer Price. It may include a sales load.
•Repurchase Price: Is the price at which units under open-ended
schemes are repurchased by the Mutual Fund. Such prices are NAV
related.
•Redemption Price: Is the price at which close-ended schemes redeem
their units on maturity. Such prices are NAV related.
•Sales Load : Is a charge collected by a scheme when it sells the units.
Also called, ‘Front-end’ load.
•Repurchase or ‘Back-end’ Load: Is a charge collected by a scheme when
it buys back the units from the unit-holders.
Schemes that do not charge a load are called ‘No Load’ schemes.

Types of mutual funds
On the basis of Flexibility
● Open-ended Funds
● Close-ended Funds
On the basis of Actively and Passively managed Funds
On the basis of Objective
● Equity Funds/ Growth Funds
● Debt/Income Funds
● Balanced Funds
● Liquid Funds/Money Market Funds
● Diversified funds
● Sector funds
● Index funds
● Tax Saving Funds
● Gilt Funds
Exchange Traded Funds
Gold ETF

An open-end fund is a mutual fund scheme that is available for subscription and
redemption on every business throughout the year, (akin to a savings bank
account, wherein one may deposit and withdraw money every day). An open
ended scheme is perpetual and does not have any maturity date.
A closed-end fund is open for subscription only during the initial offer period
and has a specified tenor and fixed maturity date (akin to a fixed term deposit).
Units of Closed-end funds can be redeemed only on maturity (i.e., pre-mature
redemption is not permitted). Hence, the Units of a closed-end fund are
compulsorily listed on a stock exchange after the new fund offer, and are traded
on the stock exchange just like other stocks, so that investors seeking to exit the
scheme before maturity may sell their Units on the exchange.

An actively managed fund is a mutual fund scheme in which the fund manager
“actively” manages the portfolio and continuously monitors the fund's portfolio ,
deciding on which stocks to buy/sell/hold and when, using his professional
judgement, backed by analytical research. In an active fund, the fund manager’s aim
is to generate maximum returns and out-perform the scheme’s bench mark.
A passively managed fund, by contrast, simply follows a market index, i.e., in a

passive fund , the fund manager remains inactive or passive inasmuch as, she does
not use her judgement or discretion to decide as to which stocks to buy/sell/hold ,
but simply replicates / tracks the scheme’s benchmark index in exactly the same
proportion. Examples of Index funds are an Index Fund and all Exchange Traded
Funds. In a passive fund, the fund manager’s task is to simply replicate the scheme’s
benchmark index i.e., generate the same returns as the index, and not to
out-perform the scheme’s bench mark.
An equity fund is a mutual fund scheme that invests predominantly in equity stocks.
In the Indian context, as per current SEBI Mutual Fund Regulations, an equity mutual
fund scheme must invest at least 65% of the scheme’s assets in equities and equity
related instruments.
Under the tax regime in India, equity funds enjoy certain tax advantages (such as,
there is no incidence of long term capital gains tax on equity shares or equity funds
which are held for at least 12 months from the date of acquisition).
Equity mutual funds are principally categorized according to company size

(Capitalisation), the investment style of the holdings (Sectors, Index) in the portfolio
and geography (Domestic and International).

Equity funds are also categorized by whether they are domestic (investing in stocks
of only Indian companies) or international (investing in stocks of overseas
companies). These can be broad market, regional or single-country funds.
Some specialty equity funds target business sectors, such as health care,
commodities and real estate and are known as Sectoral Funds. They are also called
Thematic Equity Funds. These funds invest in securities of specific sectors, which is
specified in their scheme information documents. So, the performance of these
schemes depends on the performance of the respective sector. These funds may
give higher returns, but they also come with increased risks.

Equity-Linked Savings Scheme (ELSS) is an equity mutual fund investment that
invests at least 80 per cent of its assets in equity and equity-related instruments.
ELSS can be open-ended or close ended. Investments in an ELSS qualify for tax
deductions under Section 80C of the Income Tax Act within the overall limit of ₹1.5
lakh. The amount you invest in ELSS is deducted from your taxable income, which
helps you lower the amount of income tax you are liable to pay. Investments in ELSS
are subject to a three-year lock-in period and the returns from the scheme, i.e.
dividends and capital gains, are tax-free

A debt fund is a mutual fund scheme that invests in fixed income instruments, such
as Corporate and Government Bonds, corporate debt securities, and money market
instruments etc. that offer capital appreciation. Debt funds are also referred to as
Income Funds or Bond Funds.
The word ‘Gilt’ implies Government securities. A gilt fund invests in government
securities of various tenures issued by central and state governments. These funds
generally do not have the risk of default, since the issuer of the instruments is the
government. Gilt funds invest in Gilts which have both short-term and/or long-term
maturities. Gilt funds have a high degree of interest rate risk, depending on their
maturity profile. The longer the maturity profiles of the instruments, the higher the
interest rate risk. (Interest rate risk implies that there is an effect on the market price
of debt instruments when interest rates increase and decrease. Market prices of
debt instruments rise when interest rates fall and vice-versa.)
A balanced fund combines equity stock component, a bond component and
sometimes a money market component in a single portfolio. Generally, these hybrid
funds stick to a relatively fixed mix of stocks and bonds that reflects either a
moderate, or higher equity, component, or conservative, or higher fixed-income,
component orientation. These funds invest in a mix of equities and debt, giving the
investor the best of both worlds.
Savings bank deposits have been the retail investors’ preferred investment option to
park surplus cash. Most investors regard these as the only avenue while some
believe parking surplus cash elsewhere can erode their capital and does not provide
liquidity. CRISIL’s recent study draws attention to a more attractive option – Liquid
Fund / Money Market Mutual Funds. The analysis underlines that surplus cash
invested in money market mutual funds earns high post-tax returns with a
reasonable degree of safety of the principal invested and liquidity.
Unlike regular mutual funds, an Exchange Traded Fund (ETF) trades like a common
stock on a stock exchange. The traded price of an ETF changes throughout the day
like any other stock, as it is bought and sold on the stock exchange. The trading value
of an ETF is based on the net asset value of the underlying stocks that an ETF
represents. ETFs typically have higher daily liquidity and lower fees than mutual fund
schemes, making them an attractive alternative for individual investors.
Gold ETFs are units representing physical gold which may be in paper or
dematerialised form. One Gold ETF unit is equal to 1 gram of gold and is backed by
physical gold of very high purity. Gold ETFs combine the flexibility of stock
investment and the simplicity of gold investments. Gold ETFs trade on the cash
segment of BSE & NSE, like any other company stock, and can be bought and sold
continuously at market prices.

Organization of Mutual Funds
All mutual funds, both in the public and private sector, are regulated by SEBI. SEBI
has issued a set of regulations for mutual funds in 1993. Since July 1994, UTI has
also been brought under the purview of SEBI. Since then, SEBI has power to
inspect the operations, books and records of UTI. Essentially, there are three
parties to a mutual fund. These are the sponsors, the asset management
company (AMC) and the trustees. The constitution of a mutual fund is depicted in
following figure (Constitution of MF).

Constitution of Mutual Fund

A mutual fund is set up by a company, which is called the sponsor. The sponsor
must have a sound track record, general reputation and fairness in its business
transaction.
The asset management company operates and manages the funds of the mutual
fund scheme to be in accordance with the objectives of the scheme and mutual
fund regulations. It has to submit a quarterly report on the functioning of the funds
to its trustees. The AMC employs professionals from various fields for conducting
research and making investment decisions.
The trustees have exclusive ownership of the Trust Fund and are vested with the
general power of superintendence, direction and management of the affairs of the
trust. The trustees ensure that the AMC fulfils the functions assigned to it. The
trustees are persons of high repute and expertise is in their field.

● Unit Holder
● SEBI
● AMFI
● Sponsor
● AMC
● Trustee
● The Mutual Funds - Transfer Agent
● Custodian

The Fund Sponsor (Promoters) :
The Fund Sponsor is the first layer in the three-tier structure of Mutual Funds in
India. SEBI regulations say that a fund sponsor is any person or any entity that can
set up a Mutual Fund to earn money by fund management. This fund management
is done through an associate company which manages the investment of the
fund. A sponsor can be seen as the promoter of the associate company. A
sponsor has to approach SEBI to seek permission for a setting up a Mutual Fund.
Once SEBI agrees to the inception, a Public Trust is formed under the Indian Trust
Act, 1882 and is registered with SEBI. Trustees are appointed to manage the trust
and an asset management company is created complying with the Companies
Act, 1956.

There are eligibility criteria given by SEBI for the fund sponsor:
● The sponsor must have experience in financial services for a minimum of five
years with a positive Net worth for all the previous five years.
● The net worth of the sponsor in the immediate last year has to be greater than
the capital contribution of the AMC.
● The sponsor must show profits in at least three out of five years which
includes the last year as well.
● The sponsor must have at least 40% share in the net worth of the asset
management company.
Any entity that fulfills the above criteria can be termed as a sponsor of the Mutual
Fund.

Trust and Trustees (Ownership of Trust Fund):
Trust and trustees form the second layer of the structure of Mutual Funds in India.
A trust is created by the fund sponsor in favour of the trustees, through a
document called a trust deed. The trust is managed by the trustees and they are
answerable to investors. They can be seen as primary guardians of fund and
assets. Trustees can be formed by two ways – a Trustee Company or a Board of
Trustees. The trustees work to monitor the activities of the Mutual Fund and check
its compliance with SEBI (Mutual Fund) regulations. They also monitor the
systems, procedures, and overall working of the asset management company.
Without the trustees’ approval, AMC cannot float any scheme in the market. The
trustees have to report to SEBI every six months about the activities of the AMC.

Asset Management Companies (Fund Manager):
Asset Management Companies are the third layer in the structure of Mutual
Funds. The asset management company acts as the fund manager or as an
investment manager for the trust. A small fee is paid to the AMC for managing the
fund. The AMC is responsible for all the fund-related activities. It initiates various
schemes and launches the same. The AMC is bound to manage funds and provide
services to the investor . It solicits these services with other elements like brokers,
auditors, bankers, registrars, lawyers, etc. and works with them. To ensure that
there is no conflict between the AMCs, there are certain restrictions imposed on
the business activities of the companies.

Custodian (Safe Custody of Fund): A custodian is responsible for the safekeeping
of the securities of the Mutual Fund. They manage the investment account of the
Mutual Fund, ensure the delivery and transfer of the securities. They also collect
and track the dividends & interests received on the Mutual Fund investment.
Registrar and Transfer Agents (RTAS): These are the entities who provide
services to Mutual Funds. RTAs are more like the operational arm of Mutual
Funds. Since the operations of all Mutual Fund companies are similar, it is
economical in scale and cost effective for all the 44 AMCs to seek the services of
RTAs. CAMS , Karvy, Sundaram, Principal, Templeton, etc are some of the
well-known RTAs in India. Their services include: Processing investors’ application,
Keeping a record of investors’ details, Sending out account statements to the investors,
Sending out periodic report, Processing the payouts of the dividends, Updating the investor
details i.e. adding new members and removing those who have withdrawn from the fund.

Association of Mutual Funds in India (AMFI)
The Association of Mutual Funds in India (AMFI) is dedicated to developing the
Indian Mutual Fund Industry on professional, healthy and ethical lines and to
enhance and maintain standards in all areas with a view to protecting and
promoting the interests of mutual funds and their unit holders.
AMFI, the association of all the Asset Management Companies of SEBI registered
mutual funds in India, was incorporated on August 22, 1995, as a non-profit
organisation. As of now, all the 44 Asset Management Companies that are
registered with SEBI, are its members.

Objectives of AMFI
● To define and maintain high professional and ethical standards in all areas of operation of mutual
fund industry.
● To recommend and promote best business practices and code of conduct to be followed by
members and others engaged in the activities of mutual fund and asset management including
agencies connected or involved in the field of capital markets and financial services.
● To interact with the Securities and Exchange Board of India (SEBI) and to represent to SEBI on all
matters concerning the mutual fund industry.
● To represent to the Government, Reserve Bank of India and other bodies on all matters relating to
the Mutual Fund Industry.
● To undertake nation wide investor awareness programme so as to promote proper understanding of
the concept and working of mutual funds.
● To disseminate information on Mutual Fund Industry and to undertake studies and research directly
and/or in association with other bodies.
● To take regulate conduct of distributors including disciplinary actions (cancellation of ARN) for
violations of Code of Conduct.
● To protect the interest of investors/unit holders.
Regulation of Mutual Funds: SEBI guidelines
With the gradual opening up of the financial sector to increasing competition, the
role of supervision and control of financial markets has Increased. The Securities
Exchange Board of India (SEBI). which Was Granted statutory status in 1992. has
been given the brief to protect th, interest of investors and promote the
development and regulation of the Securities market. Healthy and orderly
development of capital markets and adequate investing, protection are the twin
objective of the Securities Exchange Board of Indig (SEBI). To achieve this aim,
SEBI would help promote markets, which ensure efficiency, flexibility and infusing
investor confidence. Keeping this in mind, SEBI had issued a set of regulations and
code of conduct On January 20, 1993 for the smooth conduct and regulation of
mutual funds.
These guidelines lay down certain criteria for investment disclosure accountability
and distribution of profits to its members. The salient features of these regulations
were as follows:
● Mutual funds cannot deal in option trading, short selling, or carrying forward
transactions in securities.
● They can invest only in transferable securities in the money and capital
market or any privately placed debenture or debt securities,
● Mutual funds are required to be formed as trusts and managed by separately
formed asset management companies. The minimum net worth of the asset
management company is stipulated at Rs. 5 crore out of which the minimum
contribution of the sponsor shall be 40%.

● Restrictions to ensure that investments under an individual scheme do not
exceed 5% of the corpus of any company’s share and investments under all
the schemes, do not exceed 10% of the funds in the shares, debentures or
securities of a single company.
● Investments under all the schemes cannot exceed 15% of the funds in the
shares and debentures of a single company.
● Curbs on the transfer of investment from one scheme to another and
borrowing to finance investment.
● SEBI will grant registration only to those mutual funds which can prove to be
efficient and follow orderly conduct of business. The parameters for deciding
this will include the track record of sponsors, a minimum experience of five
years in the relevant field of financial services, integrity in business
transactions and financial soundness.

● The application forms for granting registration, seeking detailed information
of the sponsor, trustees of the fund and the asset management company
should be in place.
● The advertisement code for marketing schemes of mutual funds, thé contents
of the trust deed, investment management agreement and the scheme-wise
balance sheet have to be in the prescribed form.
● The minimum net worth of an asset management company is Rs. 5 crores of
which the minimum contribution of the sponsor should be 40%.
● The mutual fund should have a custodian, not associated in any way with the
asset management company and registered with the Board.
● The minimum amount to be raised with each closed-ended scheme should be
Rs. 20 crores and for the open-ended scheme, Rs. 50 crores.

● In case the amount collected falls short of the minimum prescribed, the entire
amount should be refunded not later than six weeks from the date of closure
of the scheme.
● The mutual funds are obliged to maintain books of accounts, expenses,
appropriation of expenses, among the individual schemes, the limit of
expenses of the asset management company that can be charged to the
mutual fund, provision for depreciation and bad debts.
● Mutual funds are under obligation to publish scheme-wise annual reports,
furnish annual statements of account, furnish six-monthly unaudited
accounts, quarterly statements of movements and net assets value, and
quarterly portfolio statement to SEBI.
● The mutual fund should ensure adequate disclosures to its investors.
● SEBI is empowered to appoint one or more persons as inspecting authority to
inspect the mutual fund.
● SEBI is empowered to appoint an auditor to investigate into the books of
accounts or the affairs of the mutual fund.
● SEBI can impose suspension of registration in case of violation of the
provisions of the SEBI Act, 1992 or the regulation.
However, certain changes have been affected by the SEBI Regulation, 1996. The
salient features of these regulations are as follows:
Investment Objectives: The money collected under any scheme of a mutual fund shall
be invested only in transferable securities in the money market, or in the capital market,
or in privately placed debentures, or securitised debts, provided that money collected
under any money market scheme of a mutual fund shall be invested only in money
market instruments in accordance with direction issued by the Reserve Bank of India. It
wag further provided that in case of securitised debts such funds may invest in
asset-backed securities excluding mortgaged backed securities.
References:
Book:
Tripathy N.P. (2007), Mutual Funds in India - Emerging Issues, EXCEL BOOKS, New Delhi
Websites:
● https://www.amfiindia.com/investor-corner/knowledge-center/what-are-mutual-funds-n
ew.html
● https://www.sebi.gov.in/sebi_data/commondocs/mutualfundupdated06may2014
.pdf
● https://www.amfiindia.com/investor-corner/
● https://www.fincash.com/l/structure-mutual-funds
Dr. Mrunal Joshi

View publication stats

MutualFunds Krish

Uploaded by

Document Information

Original Title

Copyright

Available Formats

Share this document

Share or Embed Document

Sharing Options

Did you find this document useful?

Is this content inappropriate?

Copyright:

Available Formats

MutualFunds Krish

Uploaded by

Copyright:

Available Formats

See discussions, stats, and author profiles for this publication at: https://www.researchgate.

Presentation · November 2019

Mrunal Chetanbhai Joshi

Article 11 View project

Article 10 View project

The user has requested enhancement of the downloaded file.

Dr. Mrunal Joshi B.R.C.M. College of Business Administration

Dr. Mrunal Joshi B.R.C.M. College of Business Administration

Dr. Mrunal Joshi B.R.C.M. College of Business Administration

Dr. Mrunal Joshi B.R.C.M. College of Business Administration

A passively managed fund, by contrast, simply follows a market index, i.e., in a

Equity mutual funds are principally categorized according to company size

Dr. Mrunal Joshi B.R.C.M. College of Business Administration

Dr. Mrunal Joshi B.R.C.M. College of Business Administration

Dr. Mrunal Joshi B.R.C.M. College of Business Administration

Dr. Mrunal Joshi B.R.C.M. College of Business Administration

Dr. Mrunal Joshi B.R.C.M. College of Business Administration

Dr. Mrunal Joshi B.R.C.M. College of Business Administration

Dr. Mrunal Joshi B.R.C.M. College of Business Administration

Dr. Mrunal Joshi B.R.C.M. College of Business Administration

Dr. Mrunal Joshi B.R.C.M. College of Business Administration

Dr. Mrunal Joshi B.R.C.M. College of Business Administration

Dr. Mrunal Joshi B.R.C.M. College of Business Administration

Dr. Mrunal Joshi B.R.C.M. College of Business Administration

Dr. Mrunal Joshi B.R.C.M. College of Business Administration

Dr. Mrunal Joshi B.R.C.M. College of Business Administration

Dr. Mrunal Joshi B.R.C.M. College of Business Administration

Dr. Mrunal Joshi B.R.C.M. College of Business Administration

Dr. Mrunal Joshi B.R.C.M. College of Business Administration

Dr. Mrunal Joshi

You might also like