HISTORY OF INVESTMENT FUNDS

• The earliest investment fund was a closed-ended fund formed in the

Netherlands in 1774. In 1868, such a fund was formed in Britain and in 1893 in
the United States.

• The first open-ended mutual fund, which could continuously create and cancel
units and thus vary its capital, was the Massachusetts Investment Trust created
in the United States in 1924.
MUTUAL FUNDS BASED ON STRUCTURE
OPEN ENDED FUNDS
CLOSE ENDED FUNDS
INTERVAL FUNDS
 Open ended Mutual Funds

• Mutual funds are typically open-ended funds, that is, funds that
are obliged to buy back their shares or units from holders on a
regular basis.

• These funds can issue and redeem shares or units, allowing

investors to invest in or divest from the fund.
 Open ended Mutual Funds

• According to the Securities and Exchange Board of India (SEBI), an

open-ended fund or scheme is one that is available for repurchase and
subscription continuously.

• The key feature of open-ended funds is liquidity. Moreover, these

funds do not have any fixed maturity period .
 Risk factor in open-ended funds

• Following are some of the disadvantages of investing in open-ended mutual funds:

1.Unlike close-ended schemes, open-ended schemes are vulnerable to large inflows

and outflows. A sudden outflow could force a fund manager to sell units at
unfavorable prices.

2.Open-ended funds also carry an amount of market and cash flow risk. The NAV of
these funds fluctuates every day in response to the volatilities in the financial
markets.
 Close Ended Mutual Funds

• A closed-end fund is a type of mutual fund that issues a fixed

number of shares through a single initial public offering (IPO) to
raise capital for its initial investments.

• Its shares can then be bought and sold on a stock exchange but no
new shares will be created and no new money will flow into the
fund
 Differences Between Closed-End Funds and Open-End
Funds

• Closed-end funds differ from open-ended funds in

fundamental ways.

• As noted, a closed-end fund raises a prescribed amount of

capital in a one-time offering of a fixed number of shares.
Once the shares are sold the offering is "closed."
 Differences Between Closed-End Funds and Open-End
Funds

• Open-end mutual funds price their shares only once a day,

at the end of the trading day.

• The stock price of a closed-end fund fluctuates according

to the usual forces of supply and demand and the
changing values of the fund's holdings.
 Pros
Diversified portfolio
Pros of ended Professional management
mutual funds
Transparent pricing
Potential for higher yields
 Cons
Subject to volatility
Cons of Close Less liquid than open-end funds
ended mutual Available only through brokers
funds
 Interval Funds

• An interval fund is a closed-end mutual fund that allows

investors to redeem shares periodically in limited
quantities.

• These funds can own illiquid investments that ordinary

mutual funds cannot
Examples of Illiquid investments

• Some examples of inherently illiquid assets

include houses and other real estate, cars,
antiques, private company interests and some
types of debt instruments. Certain collectibles
and art pieces are often illiquid assets as well
 Role of Mutual Funds

 The Purpose of mutual funds is to provide liquidity and higher returns with optimum
degree of safety to investors at minimum risk.
A key reason for encouraging the development of mutual funds is that they mobilize the
savings of small investors, which might otherwise remain in bank deposits, into capital
markets.

 These mobilized savings provide a source of longer-term financing for companies and
governments issuing bonds and for companies issuing equities, thus supporting
economic growth
Role of Mutual Funds
 Mutual funds also have economic benefits for their investors:

They provide cost-efficient spread of risk for retail investors, institutional

investors, and corporations

Mutual funds can play a significant role in investing for retirement.

Retirement planning is one of the most ignored topics among the working
population because most people feel that retirement is far away and nearer term
priorities seem important.
RETURN ON INVESTMENT IS ONE OF THE MOST IMPORTANT
ATTRIBUTES OF WEALTH CREATION.
MUTUAL FUNDS HELP YOU GET EXPOSURE TO DIFFERENT
ASSET CLASSES AND SUB-CLASSES, WHICH MAY ENABLE
YOU TO GET SUPERIOR RETURNS.
Benefits of Mutual Funds

Mutual funds are managed by professionals organized firm

called AMC (Asset Management Company) through
professional fund managers who actively manage
investment portfolio of various mutual fund schemes which
deliver following benefits to investors:
Benefits of Mutual Funds

• 1) Portfolio Diversification: Mutual Funds invest in a diversified

portfolio of financial instruments which enables a small investor to
hold a diversified investment portfolio even if the amount of
investment is small.

• (2) Low Risk: Mutual funds are less risky than individual stocks due
to the funds' diversification. Diversifying your assets is a key tactic for
investors who want to limit their risk. However, limiting your risk
may limit the returns you'll ultimately receive from your investment..
Benefits of Mutual Funds

• (3) Liquidity: Units of a mutual fund can be redeemed

easily with the funds being credited directly to the investors
account

• (4) Choice: Mutual funds offer investors with variety of

schemes with diverse investment objectives. Investors,
therefore, have a plenty of investing in a scheme matching
their financial goals.
Benefits of Mutual Funds
• (5) Transparency: Funds provide investors with latest
information related to the markets and the schemes. All
material facts are revealed to investors

• (6) Flexibility: Investors are also provided flexibility by Mutual

Funds. Investors can transfer their units from a debt scheme to
an equity scheme or a balanced scheme through systematic
transfer plan option (STP).
Benefits of Mutual Funds

• (7) Safety: Mutual Fund industry is fully regulated under SEC rules

where the interests of the investors are safeguarded. All funds have to
be registered with SEC and complete compliance with the rules and
transparency is ensured.

• (8) Professional management: Mutual funds portfolios are

managed by expert professional managers possessing skills and
qualifications to analyze the performance and prospects of companies.
They actively manage portfolios through close monitoring on a daily
basis, which is not possible for a retail investor
  Portfolio Diversification

 Low Risk:

 Liquidity

 Choice
Benefits of
Mutual Funds  Transparency

 Flexibility

 Safety: 

 Professional management
 DISADVANTAGE OF MUTUAL FUNDS

1.High Management Cost

 Some mutual fund has high associated cost with them. As mentioned
above, Experts manages and operates the mutual funds so mutual funds
add charges for managing the fund, manager salary, distribution cost,
etc. Depending on the fund these charges can be significant. Moreover,
if you exit mutual fund they charges high cost as exit load .
 Disadvantage of Mutual Funds
2. Lock-in Periods 

In Mutual fund there is a Equity-linked Saving Scheme

which has a lock-in period of 3 years. It means no one can
withdraw invested money before 3 years in any case.
However, You can take a loan from a bank by using this
mutual fund investment as collateral. 
Disadvantage of Mutual Funds
 Dilution

 This is the biggest disadvantage of all the disadvantages.

Diversification generally averages all your investments, and
saves you from suffering any major losses, but it also prevents
you from making major gains!.
 Thus major gains get diluted. This is the reason that people do
not invest in too many mutual funds. 
Dilution
Disadvantage of Mutual Funds
 4. Fluctuating returns
 Mutual funds do not offer fixed guaranteed returns.
 You should always be prepared for any fluctuations including
depreciation in the value of your mutual fund.
 In other words, mutual funds investment has a lot of return
changes as it is linked to stock market.
 Sometimes even expertise fund managers get huge losses.
 Asset Accumulation

 Asset accumulation is building wealth over time by

earning, saving, and investing money.
 Asset accumulation typically refers to the acquisition
of financial assets that represent value or yield income.
 The income may include interest payments, dividends,
rents, royalties, fees, or capital gains.
  At the level of the individual investor, with
globalization has also come increasing
awareness of investment products, rising
Asset personal incomes, and a stronger appetite
Accumulation
for risk—all of which contribute to the
attractiveness of investment products such
as mutual funds.
 Asset Accumulation

 Mutual funds sales worldwide have benefited

from the opportunities presented by the growth
of retirement assets, particularly defined
contribution pension plans.
Example of Mutual fund retirement scheme
• HDFC Retirement Savings Fund Equity Plan Direct-Growth
Fund Details. Investment Objective - 

• An open ended retirement solution oriented scheme having a

lock-in of 5 years or till retirement age (whichever is earlier)

• The Scheme seeks to provide long-term capital appreciation /

income by investing in a mix of equity and debt instruments to
help investors meet their retirement goals.
Ownership of Mutual Funds: Institutional and Retail Investors

• When analyzing mutual fund ownership, what is categorized as an

institutional or a retail investor may vary from country to country.

• “Retail” investors are individuals that make their own decisions (whether
with or without advice) to buy and sell mutual fund shares or units.

• An institutional investor is an investment vehicle that gathers money from

a number of persons and whose manager takes the investment decisions as
to what to buy and sell for the fund’s portfolio in alignment with its
objectives.
Distribution of Mutual Funds

• Distribution of mutual funds primarily refers to how mutual funds are

sold to the public. Mutual funds may also be sold “direct” through
direct mail, advertising, or their website without the intervention of a
distributor.

• Distribution channels are usually more diversified in developed

countries with larger and more affluent populations and.

• Although banks often dominate retail distribution of funds in developed

countries, this varies from country to country and over time.
Fund Supermarket

• A fund supermarket is a platform that allows

you to invest in a wide range of funds from
different companies from within a single
account.
 Operators of mutual funds typically receive two
types of remuneration:
(1) charges levied on investors as they buy fund
shares or units, or sell fund shares or units and
(2) annual management charges.
Mutual Fund Charges
The entry charge levied on an investor when they
buy shares or units in a fund is essentially
designed to remunerate the fund management
company for the cost of attracting that investor to
the fund.
  Many mutual fund markets, both
developed and developing, display a
significant interdependency between

Interdependency with banks and mutual funds.

Banks, Pension Funds, and
Insurance Companies  This is partly because banks often own
mutual fund management companies and
distribute mutual funds but also because
mutual funds may invest in banks.
 WHAT IS THE DIFFERENCE

• OPEN ENDED MUTUAL FUND?

AND CLOSE ENDED MUTUAL
FUNDS?