Unit - 4 Mutual Funds credit rating

Definition of Mutual Funds

a fund established in the form of a trust by a sponsor, to raise monies by the trustees through the sales of units to the public, under one or more schemes, for investing in securities in accordance with the regulations Meaning of Mutual Funds
Collect the saving from small investors, invest them in government and other corporate securities and earn income through interest and dividends, besides capital gains
Form of trust that pool the funds of a whole lot of investors to make more money by investing in an array of financial instruments. A small drops of water make a big ocean

History of MF
1964-UTI 1987- Public Sector banks, Insurance Companies SBI, Canbank, PNB LIC, GIC 1993- Private Sector Kothari Pioneer ( later merged with Franklin Templeton), J P Morgan, Morgan Stanley, George Soros and Capital International

Mutual Fund Operations

Important characteristics of a Mutual Fund

The ownership is in the hands of the investors who have pooled in their funds.

It is managed by a team of investment professionals and other service providers.

The pool of funds is invested in a portfolio of marketable investments. The investors share is denominated by units whose value is called as Net Asset Value (NAV) which changes everyday. The investment portfolio is created according to the stated investment objectives of the fund.

Advantages & Disadvantages of Mutual Funds

Professional Management Diversification Convenient Administration Return Potential Low Costs Liquidity Transparency Flexibility Choice of schemes Tax benefits Well regulated

No control over the costs. Regulators limit the expenses of Mutual Funds. Fees are
paid as percentage of the value of investment. No tailor made portfolios.

Managing a portfolio of funds. ( Investor has to hold a portfolio for funds for different objectives ).
( All these disadvantages can also be treated as advantages of direct equity over Mutual Funds)

Types of Mutual Fund

On the basis of yield & investment pattern

On the basis of execution & operation

INCOME FUND GROWTH FUND BALANCE FUND SPECIALISED FUND MONEY MARKET MUTUAL FUND

Closed Ended

Open Ended

TAXATION FUND LEVERAGED FUND DUAL FUNDS INDEX FUND BOND FUNDS AGGRESSIVE GROWTH FUND OFF-SHORE MUTUAL FUNDS PROPERTY FUND FUND OF FUNDS

CREDIT RATING
MEANING ratings are designed exclusively for the purpose of grading bonds according to their investment qualities credit rating is an unbiased and independent opinion as to issuers capacity to meet its financial obligations. It does not constitute a recommendation to buy/sell or hold a particular security

Functions of credit rating

Superior information Low cost information Basis for a proper risk-return trade off Healthy discipline on corporate borrowers Formulation of public policy guidelines on institutional investment

Benefits of credit rating

Sources of additional certification Increase the investors population Forewarns risks Encourages financial discipline Merchant bankers job made easy Foreign collaborations made easy Benefits the industry as a whole Low cost of borrowing Rating as a marketing tool

Credit Rating Agencies in India

Credit Rating Information Service Limited

CRISIL CARE DCR India ONICRA

Investment Information And Credit Rating Agency Of India - ICRA

Credit Analysis And Research Duff Phelps Credit Rating Private Limited Onida Individual Credit Rating Agency Limited -

Credit Rating symbol

High investment grades AAA (Triple A) AA (Double A) Investment Grades A BBB (Trible B) Specualative Grades BB (Double B) B c D _ Highest Safety High Safety Adequate Safety Moderate Safety Inadequate Safety High Risk Substantial Risk Default