Mutual funds


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Mutual funds

  1. 1. IntroductionA mutual fund is a financial intermediary that pools the savings of investors for collective investment in a diversified portfolio of securities. A fund is mutual as all of its returns, minus its expenses, are shared by the fund’s investors.
  2. 2. Definition• “a fund established in the form of a trust to raise money through the sale of units to the public or a section of the public under one or more schemes, for investing in securities, including money market instruments or gold or gold related instruments or real estate assets” -The SEBI of India (Mutual Fund) regulations 1996
  3. 3. Advantages• Professional management• Portfolio diversification• Reduction in transaction cost• Liquidity
  4. 4. • Tax benefits• Transparency• Stability to the stock market• Equity research
  5. 5. • Convenience• Flexibility• Protection of interest of investors• Promoting, industrial development of the country
  6. 6. Limitation of Mutual Funds• Market risk• Misappropriation of funds• Political risk
  7. 7. Mutual fund investors• Resident Indian individuals• Indian companies• Indian trusts/charitable institutions• Banks• Non-banking finance companies• Insurance companies• Provident funds• Non-residents, including Non-resident Indians• Foreign entities(FII’s)
  8. 8. Organization of a mutual fund• The Sponsor• The Mutual Fund trust• The Asset Management Company• Other Administrative Entities
  9. 9. Sponsor• The sponsor is similar to the promoter of a company as he gets the fund registered with the SEBI. Criteria’s required are• Sound track and general reputation for minimum 5 years• Not have been found of guilty of fraud
  10. 10. • He forms trust and appoints a board of trustees• Also appoints AMC as fund managers• And appoints a custodian to hold the fund assets.• The sponsored is required to contribute at least 40% of the min net worth of the asset management company
  11. 11. A mutual fund is sponsored by • Banks • Financial institutions • Companies(Indian or foreign or joint venture)
  12. 12. Out of 39 mutual funds• 4 by bank• 1 by LIC• 16 by Indian entities• 5 by foreign entities• Remaining are joint ventures
  13. 13. Mutual fund trust• A mutual fund is a trust that pools the savings of investors and invests these savings in capital market/money market instruments.• The duty of the trust is to review the performance of the fund and thereby safeguarding the interest of the investors.
  14. 14. contd• A mutual fund in India is constituted in the form of a public trust created under the Indian Trusts Act,1882.• The trust is formed by sponsor and registerd with SEBI• The fund sponsors act as the settler of the trust, contributes to initial capital and appoints trustees
  15. 15. • Collected funds are managed by board of trustees,who are independent body and acts as a protector of the unit holders interest.• At least 2/3 of the trustees are independent trustees eg: HDFC Trustee Company Limited for HDFC mutual fund
  16. 16. Asset Management Company• Asset management company manages the funds by investing in various securities. It acts like the investment manager of the trust.• The success or failure of the mutual fund depends upon the efficiency of AMC
  17. 17. • AMC is a company formed and registered under companies act,1956.• They charge a fee for the service rendered to mutual fund trust.• Investment manager• Manages the different investment schemes as per the SEBI regulation and the trust deed.• AMC should be registered with the SEBI• Net worth of atleast Rs.10 crore the form of cash
  18. 18. • Most AMC’s in India are private limited companies• Eg:HDFC asset management company limited for HDFC mutual fund
  19. 19. Other Administrative Entities• Custodian :A custodian is responsible for safe keeping of cash securities gold or gold related instruments or real estate mutual fund instruments. A custodian also participates in the clearing system through approved depository.• Registrar and transfer agents is a vital communication link between the unit holder and mutual fund.
  20. 20. FIXEDD DEPOSITS MUTUAL FUND SCHEMESInvestment for a fixed period No fixed tenure in open ended schemesAssured return on fixed deposits No assurance for either returns of capital growthLow returns High returnsHigh safety in banks Safety depends upon the investment objectiveObjective is to earn income Objective is to earn income and capital growth
  21. 21. Types of Mutual Fund SchemesFunctional Investment Portfolio Geographical Other classification classification• Open- •Equity fund •Income •Domestic •P/E ratio fund ended schemes• Close- •Debt fund •Growth •Off shore •Exchange ended traded funds schemes• Interval •Hybrid fund •Balanced •Gold exchange schemes traded funds •Real estate mutual funds
  22. 22. Functional classification• Open-ended schemes• Close-ended schemes• Interval schemes
  23. 23. Portfolio classification• Income funds• Growth funds• Balanced funds
  24. 24. Geographical classification• Domestic funds• Off shore funds
  25. 25. Investment classification• Equity fund• Debt fund• Hybrid fund
  26. 26. Investment classification Equity fund• Diversified• Value• Special• Sectoral• Derivatives arbritage• Tax savings
  27. 27. Debt funds• Money market mutual funds• Short term bond• Long term• Gilt• Floating maturity plans• Fixed maturity plans• Capital protection Schemes
  28. 28. Other classification• P/E ratio fund• Exchange traded funds• Gold exchange traded funds• Real estate mutual funds
  29. 29. Conclusion• In India, mutual funds have a potential to grow. Mutual fund companies have to create and market innovative products and frame distinct marketing strategies.• They have coma a long way, but a lot more can be done.
  30. 30. Bibliography• Info: THE INDIAN FINANCIAL SYSTEM by Bharati V Pathak• Images: Google
  31. 31. Thank you