MUTUAL FUNDS

Presented to,
Prf. R.B.L. Goshwami

By
GROUP-2
 MEANING
Mutual funds are basically investment funds where the
investment companies collect money from the investors and
invest the same in various stocks of different companies and
government bonds.

Definition

According to SEBI (mutual funds) Regulations Act 1993 defines

mutual fund as, “ a fund established in the form of a trust by a
sponsor to raise monies by the trustees through the sale of
units to the public under one or more schemes for investing in
securities.”
 CONCEPTS
• 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.

 Fund Structure
Fund Sponsors

Trustees

Asset Management
Company

Depository Agent

Custodian
 Fund Sponsor
• The Fund Sponsor
• Any person or corporate body that establishes the Fund and
registers it with SEBI.
• Form a Trust and appoint a Board of Trustees.
• Appoints Custodian and Asset Management Company either
directly or through Trust, in accordance with SEBI
regulations.

• SEBI regulations also define that a sponsor must contribute

• at least 40% to the net worth of the asset management
• company.
 Trustees
Trustees
• Created through a document called the Trust Deed
that is executed by the Fund Sponsor and registered
with SEBI.
• The Trust-the mutual fund may be managed by a
Board of Trustees- a body of individuals or a Trust
Company- a corporate body.
• Protector of unit holders interests.
• 2/3 of the trustees shall be independent
persons and shall not be associated with the
sponsors.
 Trustees
• Rights of Trustees:
• Approve each of the schemes floated by the AMC.
• The right to request any necessary information from
the AMC.
• May take corrective action if they believe that the
conduct of the fund's business is not in accordance with
SEBI Regulations.
• Have the right to dismiss the AMC,
• Ensure that, any shortfall in net worth of the AMC is
made up.
 AMC- Asset management Companies
• An AMC is involved in the daily administration and also acts
as investment advisor for the fund.
• promoted by a sponsor which usually is a reputed corporate
entity with sound record of profits.
• Typically has three departments:

Fund Management

Sales & Marketing

Operations & Accounting

 Asset Management Company
• Acts as an invest manager of the Trust under the
Board Supervision and direction of the Trustees.
• Has to be approved and registered with SEBI.
• Will float and manage the different investment
schemes in the name of Trust and in accordance with
SEBI regulations.
• Acts in interest of the unit-holders and reports to the
trustees.
• At least 50% of directors on the board are
independent of the sponsor or the trustees.
 Asset Management Company
• Obligation of Asset Management Company:

 Float investment schemes only after receiving prior approval from the
Trustees and SEBI.
 Send quarterly reports to Trustees.
 Make the required disclosures to the investors in areas such as
calculation of NAV and repurchase price.
 Must maintain a net worth of at least Rs. 10 crores at all times.
 Will not purchase or sell securities through any broker, which is
average of 5% or more of the aggregate purchases and sale of
securities made by the mutual fund in all its schemes.
 AMC cannot act as a trustee of any other mutual fund.
 Do not undertake any other activity conflicting with managing the fund.
 Features
1. MF is a Trust

2. A Financial Intermediary

3. Investors gets back units of MF in return for the money invested

4. Dealings in funds are on the basis of the Net Mkt Value of the
investment.

5. Dividend is paid out to the unit holders

6. Professionally qualified fund managers

 ADVANTAGES
• Professional Management
• Diversification of portfolio

• Convenient Administration
• Return Potential
• Low Costs
• Liquidity for some schemes
• Transparency
• Flexibility
• Choice of schemes
• Tax benefits
• Well regulated
 Disadvantages

• MFs are subject to market fluctuation

• No fixed return

• Entry and exit load (abolish right now)

• No Guarantees

• Management Risk
 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

 TYPES OF MUTUAL FUNDS
• By Structure
– Open-Ended – anytime enter/exit

– Close-Ended Schemes – redemption after period of scheme is over,

listed.

• 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 Schemes
• Tax Saving Schemes
• Special Schemes
– Index Schemes.
– Sector specific Schemes
– Offshore scheme
– Unit Linked Insurance Policy (ULIP)
 SIP- Systematic Investment
Plan
• It is a method of investing in a mutual fund.

• SIP allows the investor to buy units on a given

date every month.
• The investor decides the amount and also the
mutual fund scheme.
 Example

Month Amount NAV Units

Invested Purchased
January 1000 R. 10/- 100
February 1000 Rs. 8/- 125
March 1000 Rs. 12.50 80

Average cost per unit under the plan = 3000/305 = Rs.

9.84
Average NAV = (10 + 8 + 12.50)/3 = Rs. 10.17
 Net Asset Value (NAV)
• The net asset value (NAV) is the market value of the fund's
underlying securities. Calculated at the end of the trading day.
• Actual value of one unit of a given scheme on any given
business date.
• Reflects the liquidation value of the fund's investments
on that particular day after accounting for all expenses
Market value of Assets - Liabilities
• NAV = --------------------------------------------------
(per unit) Units Outstanding
Sale Price

Is the price which are paying when investing in a scheme. Also

called offer price. It may include Sales load.

Sales Load

Is a charge collected by a scheme when it sells the units. Also

called, ‘Front end’ load. Schemes do not charge load are
called ‘No load schemes’.

Repurchase Price

Price at which units under which open-ended schemes are

repurchased by the mutual fund. Such prices are NAV related
Origin and development of MF
• Origin in 19th Centuary

• MF emerged in U.K. and in U.S as investment

management institutions in early 20th Centuary.
• In 1822 an investment trust called “Societe
General de Belgigue” was formed in Belgium.
• In 1868 Foreign and Colonial Government
Trust was established in U.K.
 INDIAN MUTUAL FUND
INDUSTRY
• The mutual fund industry in India started in 1963 with the
formation of Unit Trust of India.
• The history of mutual funds in India can be broadly divided
into four distinct phases :-
 First phase(1963-87)

 Second phase (1987-93)

 Third phase (1993-2003)

 Fourth phase (since FEB 2003)

 First phase (1963-87)
• Established in 1963.

• It was set up RBI and functioned under the regulatory

authority of RBI.
• In 1978 UTI was de-linked from the RBI and IDBI took over
the regulatory and administrative control.
• The first scheme launched by UTI was Unit Scheme 1964
(US 64).
 Second phase (1987-93)

• Entry of Public Sector Funds.

• Public sector banks, LIC, GIC were

entered the industry.
• SBI Mutual Fund was the first non- UTI
Mutual Fund established in June 1987.
 Third phase (1993-03)

• Entry of Private Sector Funds.

• Kothari pioneer(now merged with Franklin

Templeton) was the first private sector
fund to be registered.
 Fourth phase (since Feb 03)
In February 2003, following the repeal of the Unit Trust of India Act 1963
UTI was bifurcated into two separate entities.

1. Undertaking of the Unit Trust of India- with assets under management

of Rs.29,835 crores as at the end of January 2003, representing broadly, the
assets of US 64 scheme It functions under the rules framed by GOI and
does not come under the purview of the Mutual Fund Regulations.

2. The second is the UTI Mutual Fund, sponsored by SBI, PNB, BOB
and LIC - registered with SEBI and functions under the Mutual Fund
Regulations
Major players in Indian mutual fund
industry
Birla Mutual Fund
BOB Mutual Fund HDFC Mutual Fund
Canbank Mutual Fund
Chola Mutual Fund
HSBC Mutual Fund
Deutsche Mutual Fund ING Vysya Mutual Fund
DSP Merrill Lynch Mutual Fund
Escorts Mutual FundLIC Mutual Fund Kotak Mahindra Mutual
Prudential ICICI Mutual Fund FundFranklin Templeton
Reliance Mutual Fund
SBI Mutual Fund Investments
Franklin Templeton Investments
HDFC Mutual Fund
HSBC Mutual Fund
ING Vysya Mutual Fund
Kotak Mahindra Mutual Fund
Growth of Assets Under
Management
AMFI ROLE AND ACTIVITIES

AMFI is the industry association of all mutual funds operating in

India. It is not Self-Regulatory Organization. It is a non-profit
organization whose objectives are:
 To promote and protect the interests of Mutual Funds and their
unit holders.
 To define and maintain high ethical and professional standards in
the industry.
 To enhance public awareness of Mutual Funds.

 To represent industry views and suggestions to the Regulator,

Government and the Central Bank
 AMFI’s initiatives
 Launched Certification programme since July 2000 in association

with NSE
 Certification made mandatory from November 2001

 Launched registration of certified intermediaries as AMFI

Registered Mutual Fund Advisors (ARMFA)
 Provided a broad set of guidelines known as AMFI Guidelines and

Norms for Intermediaries (AGNI)

 Registration of AMFI Certified Agents made mandatory from

November 2002
 Extensive training programmes being conducted countrywide
 NEW TRENDS

• Establishment of Pension funds

• Increasing role of Commercial Banks

 Conclusion
• The basic principle underlying mutual fund is to pool
in money with other people to convert it into funds.
• A secure investment as the chance of loss is spread
out, and the opportunity for gains are numerous.
• It is both cost- effective and an investment that gives
great future returns.