mutual fund is a common pool of money into which investors
place their contributions that are to be invested in different types of
securities in accordance with the stated objective.
Mutual Fund is a trust that pools the savings of a number of
investors who share a common financial goal.
money thus collected is then invested in capital market
instruments such as shares, debentures and other securities.
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.
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.
HISTORY OF MUTUAL FUND
Mutual fund in world
Uncertainty of the origin of mutual fund :
Some cite that the close ended investment company
launched first mutual fund in the Netherland in 1822 by
king William first.
Other point to a Dutch merchant named Adriaan Van
Ketwich whose investment trust created in 1774 may have
The Boston Personal Property Trust, formed in 1893 was
the first close ended mutual fund in U.S.
The creation of Alexander fund in Philadelphia in 1907
was an important step in the evolution toward what we
know as the modern mutual fund
History of MF’s can be discussed in two parts :
1) Emergence through public players; and
2) Emergence through private players
PHASES OF MUTUAL FUND
History of mutual funds in India can be divided into 5
Phase I . 1963-1987
UTI sole market player, created by an Act of parliament in 1963.
US 64 even today the single largest mutual fund scheme.
UTI created a number of products e.g. monthly income plans,
Equity oriented schemes and offshore funds during this period .
UTI managed assets of Rs.6700 cr. at the end of this phase.
Phase II. 1987-1993 (Entry of Public Sector
Public sector banks and financial institutions entered the
mutual funds industry.
SBI mutual fund was the first non-UTI MF to be set up in
Significant shift from deposits to MF.
Most funds were growth oriented ,closed-ended funds.
Phase III 1993-1996. (Entry of Private Sector Funds)
In 1993,the mutual funds industry was open to private
sector players both Indian and foreign.
SEBI’s first set of regulations were formulated.
Regulation revised in 1996.
Significant innovation in servicing, product design and
Phase IV 1996-1999 (Entry of Private Sector Funds)
Implementation of new SEBI regulation.
Rapid asset growth .
Bank mutual funds were recast according to the SEBI
UTI came under voluntary SEBI supervision.
Marked by very rapid growth in MF industry.
Increase in market share of private players.
AUM crossed Rs.100,000cr.
Bond funds and liquid funds registered the highest
growth(nearly 60% of assets).
UTI share dropped to nearly 50%.
ADVANTAGES OF MUTUAL FUNDS
Portfolio diversification: It enables him to hold a diversified investment
portfolio even with a small amount of investment like Rs. 2000/-.
Professional management: The investment management skills, along with
the needed research into available investment options, ensure a much better
return as compared to what an investor can manage on his own.
of Risks: The potential losses are also shared
with other investors.
of transaction costs: The investor has the benefit of economies of
scale; the funds pay lesser costs because of larger volumes and it is passed on
to the investors.
Choice to suit risk-return profile: Investors can chose the fund based
on their risk tolerance and expected returns.
DISADVANTAGES OF MUTUAL
control over costs: The investor pays investment management
fees as long as he remains with the fund, even while the value of his
investments are declining. He also pays for funds distribution charges
which he would not incur in direct investments.
tailor-made portfolios: The very high net-worth individuals or
large corporate investors may find this to be a constraint as they will
not be able to build their own portfolio of shares, bonds and other
a portfolio of funds: Availability of a large number of
funds can actually mean too much choice for the investor. So, he may
again need advice on how to select a fund to achieve his objectives.
in redemption: It takes 3-6 days for redemption of the units
and the money to flow back into the investor’s account.
CONSTITUTION OF MUTUAL
FUNDS IN INDIA
The constitution are designed to safeguard
investors, check speculative activities of mutual
funds & ensuring financial discipline through
transparency & fair play.
SEBI ( Mutual Fund ) regulation require a four
tier system to organize Mutual Fund. i.e.
- Asset Management Company
Who thinks of starting a mutual fund. The Sponsor
approaches the Securities & Exchange Board of India
(SEBI), which is the market regulator and also the
regulator for mutual funds.
SEBI checks a persons integrity ,experience in the
financial sector, his networth etc.
Sponsor is to contribute 40 per cent of the net worth of
Mutual fund is created by sponsor as a trust under Indian
Trust act 1982.
Sponsor appoints a trustee.
A trustee is a person who holds the property of Mutual
Fund in trust for the benefit of unit holders.
A company is appointed as trustee to manage the mutual
fund with approval of SEBI.
To ensure fair dealing at least 75 per cent of trustees are
to be independent of the sponsors.
The trustee role is not to manage money. Their job is
only to see , whether the money is being managed as per
is duty of trustee is to provide information to
unit holders as well as to SEBI about mutual
Trustees are to appoint AMC to float the
It is trustees duty to observe & ensures that
AMC is managing schemes in accordance with
the trust deed.
ASSET MANAGEMENT COMPANY
The sponsor or trustees appoint an AMC, also known as
‘Investment Manager’, to manage the affair of mutual
The AMC’s Board of Directors must have at least
50% of Directors who are independent directors.
The AMC has to be approved by SEBI. The AMC
functions under the supervision of it’s Board of
Directors, and also under the direction of the
Trustees and SEBI.
It is the AMC, which in the name of the Trust,
floats new schemes and manage these schemes
by buying and selling securities.
In order to do this the AMC needs to follow all
rules and regulations prescribed by SEBI.
Whenever the fund intends to launch a new scheme, the
AMC has to submit a Draft Offer Document to SEBI.
This draft offer document, after getting SEBI approval
becomes the offer document (OD) of the scheme.
The Compliance Officer has to sign the Due Diligence
Certificate in the offer document.
A custodian’s role is safe keeping of 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
SEBI requires that each mutual fund shall have
a custodian who is not in any way associated
NAV or Net Asset Value is the market value of
the assets per unit after deducting the liabilities.
Here's how the NAV is calculated:
(Market Value of the Scheme's Investments) + Other
Assets (including accrued interest)+ Un amortized
Issue Expenses (only in case of schemes launched on a
load basis) - All Liabilities except unit capital and
reserves)} Divided by the number of units outstanding
at the end of the day.
If investment is in equity linked saving
schemes (ELSS) the lock in period is three
years. Which means your money will
remain locked in with the mutual fund
company for a period of three years.
SIP or Systematic Investment Plan enables you to invest an
amount on a regular basis and bring about a disciplined
approach to investing. Through SIP you are able to get
more or less units of a fund over a period of time with the
investment amount remaining constant. If you're planning a
SIP note that the minimum amount you can invest is
TYPES OF MUTUAL FUNDS
3.)BY INVETSMENT OBJECTIVE
4.)OTHERS SCHEMES AND PLANS
1. Open-ended Funds
An open-end fund is one that is available for subscription all through
the year. These do not have a fixed maturity. Investors can conveniently
buy and sell units at Net Asset Value ("NAV") related prices. The key
feature of open-end schemes is liquidity.
2. Closed-ended Funds
These schemes have a pre-specified maturity period. One can invest
directly in the scheme at the time of the initial issue. The market price
at the stock exchanges could vary from the net asset value (NAV) of the
scheme on account of demand and supply situation, expectations of unit
holder and other market factors.
3. Interval Funds
Interval Schemes are that scheme, which combines the features of openended and close-ended schemes. The units may be traded on the stock
exchange or may be open for sale or redemption during pre-determined
intervals at NAV related prices.
1. Equity fund
These funds invest a maximum part of their corpus
into equities holdings.
The structure of the fund may vary different for
different schemes and the fund manager’s outlook on
2. Debt funds
The objective of these Funds is to invest in debt
papers. Government authorities, private companies,
banks and financial institutions are some of the major
issuers of debt papers.
These funds ensure low risk and provide stable income
to the investors.
3. Balanced funds:
They are a mix of both equity and debt funds.
They invest in both equities and fixed income
securities, which are in line with pre-defined
investment objective of the scheme.
These schemes aim to provide investors with the
best of both . Equity part provides growth and the
debt part provides stability in returns.
BY INVESTMENT OBJECTIVE:
The aim of these schemes is to provide capital
appreciation over medium to long term. These schemes
normally invest a major part of their fund in equities.
2. Income Funds
The aim of these schemes is to provide regular and
steady income to investors. These schemes generally
invest in fixed income securities such as bonds and
3. Balanced Funds
Balanced Schemes aim to provide both growth
and income by periodically distributing a part of
the income and capital gains they earn. These
schemes invest in both shares and fixed income
4. Money Market Funds
The aim to provide easy liquidity, preservation of
capital and moderate income. These schemes
generally invest in safer, short-term instruments,
such as treasury bills, certificates of deposit,
commercial paper etc.
1. Tax Saving Schemes
Some times the investors investing their money in
the mutual funds to get some tax benefits.
2. Index Schemes
BSE Sensex or the NSE 50.
Pharmaceuticals, Software, Fast Moving Consumer
Goods (FMCG), Petroleum stocks,etc.
OTHER PLANS OF MUTUAL FUND
Unit-Linked Plan (ULIP)
Unit-linked plan offers the interesting option of
combining protection as well as tax advantages
with the attractive prospects of investing in
It works on a minimum premium basis and not on
a sum assured one.
Investor decide the amount contributed at regular
ULIP offers cover till needs are fulfilled, beyond
that it becomes an investment avenue.
Fixed Maturity Plans (FMPs)
The primary objective of a FMP is to generate
income while protecting the capital by investing in a
portfolio of debt and money market securities.
The tenure can be of different maturities, ranging
from one month to five years.
FMPs can be compared to Fixed Deposits of a bank.
While a Fixed Deposit offers a 'guaranteed' return,
returns in FMPs are only 'indicative'.
The fund house fixes a 'target amount' for a scheme.
Monthly Income Plans (MIPs)
MIPs, as they are more popularly known, are a
category of mutual funds that invest mainly in
MIPs are launched with the objective of giving a
monthly income to investors, but the periodicity
depends upon the option chosen by the investor.
These are generally monthly, quarterly, halfyearly and annual options.
LIST OF MUTUAL FUND
COMPANIES IN INDIA
Some of the popular firms that deal in mutual
funds in India are:
Reliance Mutual Funds
Birla Sun Life
State Bank of India (SBI)
Sahara Mutual Funds
TOP MUTUAL FUNDS IN INDIA
Reliance Mutual Fund
HDFC Equity Fund
ICICI Prudential Fund
SBI Mutual Fund
Mutual Funds are primary vehicles for large collective investments,
working on the principle of pooling funds.
Agents and distributors are a vital link between the mutual funds
a broker between the fund and the investor and acts on behalf of
He is not exclusive to the fund and also sells other financial
services. This in a way helps him to act as a financial advisor.
a company which sells mutual funds on behalf of the fund.
It has several employees or sub-broker under it.
It manages distribution for several funds and receives commission
for its services.
Several banks, particularly private and foreign
banks are involved in a fund distribution by
providing similar services like that of distribution
They work on commission basis
Mutual funds sell their own products through
their sales officers and employees of the AMC.
This channel is normally used to mobilize funds
from high net worth individuals and institutional