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Mutual Funds

PRESENTED BY:- RAJ KUMAR


LLOYD BUSINESS SCHOOL
PGDM(2008-2010)
PH:- 09711242389
Mutual Fund ??
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.

•Thus a Mutual Fund is the most suitable investment for the common
man as it offers an opportunity to invest in a diversified,
professionally managed basket of securities at a relatively low cost.
BRIEF HISTORY
• Foreign and Colonial Government Trust of
London established in 1868
• Close-ended mutual funds were formed in the
U.S.A. in 1930.
• 1964-UTI
• 1987- Public Sector banks, InsuranceCompanies
 - 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

BRIEF HISTORY
• Around 1980, 5 million Americans
owned mutual funds.

• However, by 2001, 93 million
Americans in 55 million households
owned mutual funds.

• In 2001 investors added $505 billion in
net new funds to mutual funds.

• In 2001, mutual fund assets totaled $7


trillion.
ORGANIZATION OF MUTUAL
FUND
RULE & REGULATIONS
• Governed by SEBI (Mutual Fund) Regulation 1996
 - All MFs registered with it, constituted as trusts
( under Indian Trusts Act, 1882)
• Bank operated MFs supervised by RBI too
• AMC registered as Companies registered under
Companies Act, 1956
• SEBI- Very detailed guidelines for disclosures in
offer document, offer period, investment
guidelines etc.
 - NAV to be declared everyday for open-ended,
every week for closed ended
 - Disclose on website, AMFI, newspapers
 - Half-yearly results, annual reports
 - Select Benchmark depending on scheme and
compare
TERMINOLOGIES
DEMYSTIFIED…
• Asset Allocation
 - Diversifying investments in different assets such
as stocks, bonds, real estate, cash in order to
optimize risk.

• Fund Manager
 - The individual responsible for making portfolio
decision for a mutual fund, in line with fund’s
objective.

• Fund Offer Document
 - Document with investment objectives, risk
factors, expenses summary, how to invest etc.

• Dividend
 - Profits given to the investor from time to time.
• Growth
TERMINOLOGIES CONTD…
• NAV
 - Market value of assets of scheme minus its liabilities.
• Per unit NAV = Net Asset Value
 No. of Units Outstanding on Valuation
date
• Entry Load/Front-End Load (0-2.25%)
 - The commission charged at the time of buying the fund.
 - To cover costs for selling, processing
• Exit Load/Back- End Load (0.25-2.25%)
 - The commission or charge paid when an investor exits from a
mutual fund. Imposed to discourage withdrawals
 - May reduce to zero as holding period increases.
• Sale Price/ Offer Price
 - Price you pay to invest in a scheme. May include a sales load.
(In this case, sale price is higher than NAV)
• Re-Purchase Price/ Bid Price
 - Price at which close-ended scheme repurchases its units
• Redemption Price
 - Price at which open-ended scheme
INVESTMENT COMPANIES AND
FUND TYPE
TYPES OF MUTUAL FUND
SCHEME
• By Structure

- Open-Ended – anytime enter/exit
 - Close-Ended Schemes – listed on exchange, redemption
after period of scheme is over.


• By Investment Objective
 - Equity (Growth) – only in Stocks – Long Term (3 years or
more)
 - Debt (Income) – only in Fixed Income Securities (3-10
months)
 - Liquid/Money Market (including gilt) – Short-term Money
Market (Govt.)
 - Balanced/Hybrid – Stocks + Fixed Income Securities (1-3
years)


• Other Scheme s
INVESTMENT COMPANIES AND
FUND TYPE
• An Investment company is business
that specializes in pooling funds
from individual investors and making
investments.

• An Open-end fund is an investment


company that stands ready to buy
and sell shares in itself to investors,
at any time.

• A Closed-end fund is an investment


company with a fixed number of
shares that are bought and sold by
ADVANTAGES OF MUTUAL
FUNDS
• Professional Management
• Diversification
• Convenient Administration
• Return Potential
• Low Costs
• Liquidity
• Transparency
• Flexibility
• Choice of schemes
• Tax benefits
• Well regulated

BUYING MUTUAL FUNDS

• Contacting the Asset Management Company directly


 - Web Site
 - Request for agent
• Agents/Brokers
 - Locate one on AMFI site
• Financial planners
 - Bajaj Capital etc.
• Insurance agents
• Banks
 - Net-Banking
 - Phone-Banking
 - ATMs
• Online Trading Account
 - ICICI Direct
 - Motilal Oswal, Indiabulls- Send agents
MUTUAL FUND COMPANIES
RISK
• Scheme Risks

• Investment Risk

• Business Risk

• Political Risks


BEFORE BUYING MUTUAL
FUNDS
Mutual funds investment
are subject to market
risk. Please read the
offer document
carefully
before investing.
Thank You