MUTUAL FUNDS

Name- Abhishek Gupta

Class- 11th –E
Roll No-1 1
MUTUAL FUNDS
Meaning and Introduction:-

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.”

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CONCEPT
 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.
 Mutual funds have a fund manager who invests the money on behalf of
the investors by buying / selling stocks, bonds etc.
 The income earned through these investments and the capital appreciation
realized 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.

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ORIGIN AND
DEVELOPMENT OF MF’s
▪ Origin in 19th Century

▪ MF emerged in U.K. and in U.S as investment management institutions in early

20th Century.

▪ 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.

▪ Currently, the worldwide value of all mutual funds totals more than $US 26
trillion.

▪ The United States leads with the number of mutual fund schemes. There are more
than 8000 mutual fund schemes in the U.S.A.
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 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)

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IMPORTANT CHARACTERISTICS OF
A MUTUAL FUND
 A Mutual Fund actually belongs to the investors who have pooled their Funds. The
ownership of the mutual fund is in the hands of the Investors.

 A Mutual Fund is managed by investment professional and other

Service providers, who earns a fee for their services, from the funds.

 The pool of Funds is invested in a portfolio of marketable investments.

 The value of the portfolio is updated every day.

 The investor’s share in the fund is denominated by “units”. The value of the units changes
with change in the portfolio value, every day.

 The value of one unit of investment is called net asset value (NAV).

 The investment portfolio of the mutual fund is created according to the stated investment
objectives of the Fund.
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 OBJECTIVES OF A MUTUAL
FUND
 To provide an opportunity for lower income groups to acquire without much difficulty,
property in the form of shares.

 To cater mainly of the need of individual investors who have limited means.

 To manage investors portfolio that provides regular income, growth, safety, liquidity, tax
advantage, professional management and diversification.

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MUTUAL FUNDS
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 9
MUTUAL FUNDS
DISADVANTAGES
 MFs are subject to market fluctuation

 No fixed return

 Entry and exit load (abolish right now)

 No Guarantees

 Management Risk

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ORGANISATION OF MUTUAL
FUND

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 Fund Sponsor
 The Fund Sponsor

 Any person or corporate body that establishes the Fund and registers it with SEBI.

 Forms a Trust and appoints a Board of Trustees.

 Appoints a 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.

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Trustees
Trustees:
 Created through a document called the Trust Deed that is executed by the Fund Sponsor
and registered with SEBI.
 The Trust i.e. the mutual fund may be managed by a Board of Trustees i.e. a body of
individuals or a Trust Company i.e. 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.
Rights and Roles 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. 13
 Custodian
 CUSTODIANS OF MUTUAL FUNDS:-
 A custodian’s role is safe keeping of physical securities and also keeping a tab on the
corporate actions like rights, bonus and dividends declared by the companies in which the
fund has invested.
 The Custodian is appointed by the Board of Trustees.
 Mutual funds run by the subsidiaries of the nationalized banks have their respective
sponsor banks as custodians like Canara bank, SBI, PNB, etc.
 Foreign banks with higher degree of automation in handling the securities have assumed
the role of custodians for mutual funds.
 RESPONSIBILITY OF CUSTODIANS:-
 Receipt and delivery of securities
 Holding of securities.
 Collecting income
 Holding and processing cost
 Corporate actions etc 14
 AMFI
 Association of Mutual Funds in India (AMFI) was incorporated on 22nd August
1995.

 AMFI is an apex body of all Asset Management Companies (AMC) which has
been registered with SEBI.

 AMFI has brought down the Indian

Mutual Fund Industry to a professional
and healthy market
with ethical lines enhancing and
maintaining standards.

 It follows the principle of both protecting and promoting the interests of mutual
funds as well as their unit holders.

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 SEBI Regulations
All mutual funds are regulated by the Securities
and Exchanges Board of India (SEBI).
It issued detailed guidelines for their setting up
and operation on 20th January, 1993.

The following are the highlights of SEBI regulations:

 Mutual funds are to be established in the form of a trust under the Indian Trusts Act, 1882
and operated by separate asset management companies (AMC)

 They have to set up a Board of Trustees and Trustee Companies and constitute their Board
of Directors.

 The minimum net worth of AMC’s is stipulated at Rs. 5 crore(later increased to Rs. 10
crore).

 The AMC’s and trustees are to be two separate legal entities and an arm’s length
relationship must be maintained between the two. 16
 TYPES OF MUTUAL FUNDS
 By Structure

 Open-Ended – anytime enter/exit

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

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 Mutual Fund – Risk Associated
 Market Risks – Market value of security in future

 Political Risks – Change in tax laws, etc

 Inflation Risks – Future changes in interest rates

 Business Risks – Uncertainty concerning future existence

 Economic Risks – Uncertainty in economy

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 Mutual Funds – Do’s & Donts

 Assess your self.

 Try to understand where money is going.
 Don’t rush in picking funds
 Invest – don’t speculate.
 Don’t put all oranges in 1 basket.
 Be regular.
 Keep track of your investments.
 Know when to sell your mutual funds.

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Mutual Funds Are Subject To Market
Risks , Please Read The Offer
Document Carefully Before
Investing !!!!!

Thank You !!!

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