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Mutual funds
Mutual funds
Mutual funds
Mutual funds
Mutual funds
Mutual funds
Mutual funds
Mutual funds
Mutual funds
Mutual funds
Mutual funds
Mutual funds
Mutual funds
Mutual funds
Mutual funds
Mutual funds
Mutual funds
Mutual funds
Mutual funds
Mutual funds
Mutual funds
Mutual funds
Mutual funds
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Mutual funds

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  • 1. MUTUAL FUNDS What is Mutual Fund: A Mutual Fund is a trust pools the savings of a number of investors share a common financial goal a diversified portfolio of financial instruments equities, debentures / bonds or other instruments the fund is then deployed in: investment alternatives Income is shared by unit holders In proportion to their investment
  • 2. MUTUAL FUNDS Emergence of Mutual Fund in India Mutual funds in India began in 1964 Unit Trust of India (UTI) was the first Remains the market leader even today Having about 68% of the market share Lost monopoly in 1987 With entry of public sector mutual funds Promoted by public sector banks and insurance companies Industry was open to foreign institutions in 1993 Real competitive structure began only then
  • 3. MUTUAL FUNDS Features / Advantages of Mutual Fund Professional management Diversification Convenient administration Return potential Low Costs Liquidity Transparency
  • 4. MUTUAL FUNDS Schemes of the Mutual Funds (by structure) A. Open ended mutual funds: Redeemable on demand available through out the year Not Listed on the Stock Exchange Fund would be ready to buy the shares May issue new shares in lieu of them Buy back on Net Asset Value (NAV) Value depends on: performance of select securities at exchange
  • 5. MUTUAL FUNDS Schemes of the Mutual Funds (by structure) B. Close ended mutual funds: Limited number of shares Having Certain Maturity period Subscription during a specified period Listed on the exchange and traded Listing and trading is to create liquidity As they cannot be redeemed before maturity These are similar to equity shares
  • 6. MUTUAL FUNDS Schemes of the Mutual Funds (by objective) A. Income Oriented Schemes: Fund offers fixed income to the investors Fund itself invests the money in: fixed income yielding bonds etc. Ideal for capital stability and regular income Capital appreciation might be low Has a reduced risk
  • 7. MUTUAL FUNDS Schemes of the Mutual Funds (by objective) B. Growth Oriented Schemes: Fund offers Growth potential Invests fund in: Dividend paying companies Companies with rapid capital appreciation focus on low risk high yield equity Ideal for long term growth No regular income
  • 8. MUTUAL FUNDS Schemes of the Mutual Funds (by objective) C. High Growth schemes: Fund offers High Growth potential Invests fund in: Dividend paying companies Companies with rapid capital appreciation focus on high risk high yield equity subject to lot of volatility Ideal for aggressive investors
  • 9. MUTUAL FUNDS Schemes of the Mutual Funds (by objective) D. Hybrid schemes: Fund offers Income + Growth potential Invests fund in: Debentures and bonds; and Equity in Dividend paying companies Companies with capital appreciation focus on Balanced investment Hence they are also known as Balanced funds
  • 10. MUTUAL FUNDS Schemes of the Mutual Funds (by objective) E. Tax saving schemes: Fund offers Tax rebate Investment in exempted avenues Equity linked savings schemes pension schemes focus on Tax saving and appreciation
  • 11. MUTUAL FUNDS Schemes of the Mutual Funds (by objective) F. Money market mutual funds: Investment in: short term debt securities Such as deposits and bonds Focus on high yielding short term investments Tax saving and appreciation
  • 12. MUTUAL FUNDS Schemes of the Mutual Funds (by objective) G. Other funds; such as: Real Estate Funds Off-shore funds hedge funds fund of funds Exchange trade funds (ETFs)
  • 13. MUTUAL FUNDS Risks involved in the Mutual Funds Market risk: Market influenced by outside factors Affecting particular or all industries Prices of the scripts fall and rise without connection with the performance of the Company
  • 14. MUTUAL FUNDS Risks involved in the Mutual Funds Inflation risk Fall in rupee value Reduced purchase power Resulting in in-sufficient earnings Credit risk Weak financial position of the borrowing company Affecting the payment of interest Affecting the repayment of principal amount
  • 15. MUTUAL FUNDS Risks involved in the Mutual Funds Investment risk Investment may not be in proper sectors Growth sectors might be ignored Resulting in lesser returns than anticipated Liquidity risk Thin trading in the invested securities Affecting the sale value Hence returns not as anticipated
  • 16. MUTUAL FUNDS Computation of net asset value: Fixed/unlimited number of shares are issued By the fund at once or from time to time The money received is referred to as Fund Each scheme invests the fund in: pre-promised nature of securities These investments are termed as Assets Redemption of the shares is done on the basis of Net Asset Value i.e. the proportion of the Net Assets to each share or Total net assets of the scheme No. of units/shares outstanding
  • 17. MUTUAL FUNDS Risks involved in the Mutual Funds Other risks: Excessive diversification of the portfolio Focus only on blue chip securities Frequent buying and selling resulting in brokerage and commission Poor planning Negligence of the fund managers
  • 18. MUTUAL FUNDS Constitution and management of Mutual Funds Mutual fund shall be in the form of a trust Trust deed shall be registered under Indian Registration Act, 1908 Sponsor and Trustees shall be the parties to the Trust Deed Who can be a trustee Person of ability, integrity and standing Shall be independent (not associate with sponsor) Cannot be a trustee of more than one fund -unless he is an independent trustee
  • 19. MUTUAL FUNDS Constitution and management of Mutual Funds Who can be a Sponsor: Person of ability, integrity and standing Sound track record; meaning: Associated with financial services with 5 years Positive net worth for preceding 5 years has closed the 5th year in profits 40% contribution to the net worth of the AMC
  • 20. MUTUAL FUNDS Constitution and management of Mutual Funds Incorporation of an Asset Management Company: Every mutual fund shall have an AMC Incorporated under Companies Act, 1956 AMC should be approved by SEBI Enter into an agreement with Trustees Shall formulate schemes Raise money against units Invest the funds in approved securities Distribute income to the shareholder of the funds
  • 21. MUTUAL FUNDS Constitution and management of Mutual Funds Registration of a mutual Fund: Sponsor with a sound track record Eligible trustees Execution and Registration of trust deed Incorporation of AMC Agreement of AMC with the Trustees Sponsor to contribute 40% of Net worth of AMC Appointment of a Custodian
  • 22. MUTUAL FUNDS Restriction on investments by mutual funds Investment in debts instruments (rated below Investment) shall not exceed 15% of NAV Debt instruments issued by a single issuer only upto 10% of the NAV Not more than 10% of the paid up capital in any Co. Issue expenses shall not exceed 6% of the fund No investment in unlisted associate company
  • 23. MUTUAL FUNDS Restriction on business activities of mutual funds No activity other than management of the scheme Shall not act as trustee of any scheme Shall not invest in any of the schemes floated by it Unless disclosed in the offer document

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