Mutual Funds

What is a Mutual Fund?

Collective Investment Scheme
Indirect way of investing in capital

markets
Managed by a professional
investor
Ownership of fund is mutual ,
beneficial & proportionate to
contributions
made by each investor

List of Mutual Funds

Axis

Asset Management
Company Ltd.
HDFC Asset mgt co.
Franklin Templeton asset
mgt(India) Pvt. ltd.
IDBI Asset mgt ltd.
UTI Asset mgt Co.

Reasons Why People

Purchase Mutual Funds
Diversification
Professional management
Convenience

16-3

Investing through MFs

Advantages

Disadvantages

1.Diversified portfolio of
investments

1.Expenses charged by MF borne

by the investor

2.Professional Fund Management

2.No tailor made portfolios for

investors

3.Easy Liquidity

3.Custody of investments not

with investor

4.HigherFlexibility & Convenience

5.Managing a portfolios of funds

5.Lower Transaction cost

Importance of Mutual
Funds

The first private sector fund to

operate in India was Kothari Pioneer,
which later merged with Franklin
Templeton .

Objectives of Mutual
Funds
Current

income

Long-term
Growth

growth

and income

Balanced

Mutual Fund Schemes

(Structure wise)
Close Ended Funds

Open Ended Funds

1.Fixed maturity date

1.No fixed maturity date

2.Units can be purchased from MF 2.Units open for sale & purchase
during NFO period only
from MF at all times.
3.No. of units & unit capital
remains constant

3.No. of units & unit capital keep

on changing daily

Mutual Fund Schemes

(Structure wise)
Load Funds

No Load Funds

1.Load is one time sales charge to 1.Marketing& Selling expenses of

recover marketing/selling
scheme are borne by AMC
expenses from investor
2.Entry load/exit load or both

2.Investor buys & sells units at

NAV price

3.Entry load is also called Front

end load

3.Return on investment not

reduced because there are no
loads.

4.Exit load is also called Back end

load.

Classification of Mutual Fund

Schemes
Mutual Fund Schemes

Investment Class
Objective
Risk
Time
Horizon
Equity Fund Growth Fund
High risk fund Long Term
Debt Fund Income Fund
Moderate Risk Medium Term
Money Market Fund
Low Risk Fund
Short Term
Hybrid Funds

Other Funds Categories

Commodity

Funds-Invest in stocks of
commodity companies
Real Estate Funds-Invest in stocks of
real estate companies
Exchange Traded Funds-Trade like a
single stock on the stock Exchange
Fund of Funds-Invest in other mutual
funds

Money Market Mutual

Funds

Money Market Funds are also called as Liquid

Funds
This is the most conservative type of mutual
fund.
They offer high liquidity & safety of principal
They are low risk & low return funds
MMMFs are an appropriate place for savings.
These funds have typically offered higher interest
rates than bank savings accounts.

Stock Mutual Funds

Type of fund that invests in stocks.
These funds are also known as equity
funds.
There are many different types of stock
mutual funds.
Some of the most common include:
Growth funds, value funds, international
funds, and sector funds.

Equity-income Fund: Emphasizes

current income and capital preservation
Focus is on high current income with some

long-term capital appreciation

Invest in high-yielding common stocks,
convertible securities or preferred stocks
Typically less price volatility than overall stock
market
Less risky investments for relatively
conservative investors looking for moderate
growth

Bond Mutual Funds

Type

of mutual fund that invests in

bonds.
Typically, bond mutual funds have
the objective of providing stable
income with minimal risk.
Lower risk investments for investors who are

looking for steady income

Some price volatility occurs with changing
interest rates

Balanced Mutual Funds

These

are also known as hybrid

funds.
These mutual funds invest in stocks,
bonds, and money markets.
These are very diversified mutual
funds. The stock portion of the fund
provides the potential for capital
appreciation, while the bond and
money market portion provide
income.

Balanced Fund: generates a balanced

return of both current income and longterm capital gains
Invest in blend of fixed-income securities and

common stocks, with 25% to 30% in fixed

income
Allocation between stocks and bonds typically
remains constant or varies very little
Emphasis between fixed-income and common
stocks can be shifted as market conditions
change
Less risky investments for relatively
conservative investors looking for moderate

Load v. No Load Mutual

Funds
A

mutual fund that charges a

commission
to
cover
its
administrative costs is called a load
fund.
A front-end load charges the load
when the shares are purchased,
while a back-end load charges the
load when the shares are sold.
A
no-load mutual fund doesnt
charge
a
purchase
or
sales

Open-End Investment
Companies
Investors

buy and sell shares directly

with the mutual fund company without
a secondary market
Have an unlimited number of shares
Purchase
and
selling
price
is
determined by the Net Asset Value
(NAV) of the fund
All purchases and sales are completed
at the end of the day after the stock
markets have closed

Closed-End Investment
Companies
Sell only the initial offering
Subsequent trades are done in a
secondary market, similar to the
common stock market
Have a limited number of shares
Purchase and selling price is determined
by
supply
and demand

Types of Mutual Funds

Value Fund: seeks stocks

undervalued in the market
Focus

that

are

is on intrinsic value of stocks and

requires extensive fundamental analysis
Invest in stocks with low P/E ratios, high
dividend yields and promising futures
Looks
for undiscovered companies with
potential for future growth
Less
risky
investments
for
relatively
conservative investors looking for moderate
growth

Factors in Comparing Mutual

Funds
Funds

investment performance
Tax efficiency
Fee structure
How particular fund fits into your
portfolio
Investment skills of fund managers
Load or No-Load funds
Closed-End or Open-End funds

Sources of Return
from Mutual Funds
Dividend

income
Capital gains distributions
Change in price/NAV

Trustee
Mutual

Fund is managed by a
Trustees
It is the responsibility of the Trustees
to protect the Interest of the
Investors/unit holders.
AMC , Custodian & Depository
Participant are accountable to
Trustees

Asset Management
Company
Trustees

appoint the AMC with prior

approval of SEBI
AMC has to maintain net worth of not
less than Rs 10 crore at all times
AMC can be terminated with the
consent of Majority of Trustees or
Unit holder representing at least 75% of unit
capital
With prior approval of SEBI

Role of Registrars & Transfer

Agents
SEBI

registered only
Appointed by Trustees
Keeps record of unit holders account
Issues , redeems , transfers units of
mutual fund schemes.
Distributors

appointed by AMC

Role of AMFI
To promote interests of MFs & unit holders

and interact with SEBI/RBI/ Govt . Regulators

To set ethical , commercial & professional
standards
To increase public awareness of MF industry
To implement program of certification for all
intermediaries and other engaged in MF
selling

Offer Document

Offer Document of a MF scheme is a legal

document prepared & issued by AMC on behalf
of trustees, inviting public to subscribe the
units of MF scheme.
Offer document discloses adequate information
for investors to take informed investment
decisions.
Offer Document issued once at the time of
launching a scheme(NFO) for close Ended Funds
For open ended funds, OD issued at NFO stage
& revised every 2 years.

Contents of Offer Document

on Cover Page
Name of the Mutual Fund
Name of the scheme
Type of scheme
Name of the Asset Management

company
Price of units
Opening , closing dates
Mandatory Statements

NAV
NAV

of a unit= Net Assets of the

Scheme
Number of units
outstanding

MFs v/s Other Financial

Products
Product

Investment
Objective

Risk Tolerance Time Horizon

Equity

Capital
appreciation

High

Long Term

FI Bonds

Income

Low

Med-Long

Bank Deposits

Income

Low

Flexi-All times

PPF

Income

Low

Long Term

Life Insurance

Risk Cover

Low

Long Term

Gold

Inflation Hedge

Low

Long Term

Mutual Funds

Capital Growth , H-M-Low

Income

Flexi-All Terms