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Role and Functions of

Mutual Funds
Module 5.1
Hemchand J

What is a mutual fund

It is a mechanism of pooling resources
from the public by issuing units to them
and investing the funds so collected in
securities in accordance with the
objectives as disclosed in the offer
Mutual fund issues units to investors in
accordance with the amount invested by
them. Investors in mutual funds are also
known as unit holders.

Profits/Losses of fund/plan are shared
by investors in proportion to their
A mutual fund is required to be
registered with SEBI.
SEBI formulates policies and
regulates the mutual funds to protect
the interest of the investors.

Management of Mutual
A mutual fund is set up in the form of
a trust, which has sponsors, trustees,
Asset Management Companies and
The trust is established by one or
more sponsors.
A sponsor is like promoter of a
The trustees hold the property of the
mutual fund for the benefit of the

An AMC approved by SEBI manages the funds by
making investment in various types of securities.
A custodian, registered with SEBI, holds
securities of various schemes in its custody.
The performance of a mutual funds is denoted
by the Net Asset Value (NAV) of the fund. NAV
per unit is the market value of securities of the
scheme, less expenses incurred by the scheme ,
divided by the total number of units. NAV has to
be disclosed on a regular basis daily or weekly.

Open Ended and Close Ended

Open ended schemes are available
for subscription and repurchase on a
continuous basis. They do not have
fixed maturity periods. Their key
feature is liquidity.
Close ended schemes have a definite
maturity period and is open for
subscription only during the initial
launching period. They are normally
listed in stock exchanges.

Other Funds

Growth and equity oriented schemes.

Income/Debt oriented schemes.
Balanced plan.
Money market funds.
Index funds and Gilt funds.
Exchange traded funds.
Equity Linked Savings Schemes (Tax
saving schemes).

Repurchase of Redemption
It is the price at which and open ended
scheme purchases units from unit holders.
If there is an exit load specified , the investor
gets an amount equal to NAV less exit load.
Assured return schemes assure a specific
return to the unit holder irrespective of the
performance of the scheme.
A scheme cannot promise returns unless such
returns are fully guaranteed by the sponsor or
AMC and is disclosed in the offer document.

Role of Mutual Funds in Capital

Mutual funds are emerging as an important
financial intermediary for the investing public in
India. SEBI has made it mandatory for any
person engaged in marketing and selling of
mutual fund products to pass the Association of
Mutual Funds in India (AMFI) certification test .
These days banks also enrol themselves as
corporate distributors and have started
marketing mutual fund products using their
large branch network and existing