Type of Mutual Funds

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Mutual Funds: Different Types Of Funds

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Type of Mutual Funds

  1. 1. Types of Mutual Funds Financial Markets
  2. 2. Major types of mutual funds • There are two major types of mutual funds – Money market mutual funds – Stock funds and bond and income funds Further mutual funds can classified on the basis of risk and return
  3. 3. Types of mutual funds • 1. Money market funds – These funds invest in money market securities – They are low risk and low return funds – They provide the chance to earn the going rate in the money market with diversification advantage
  4. 4. • 2. Bond Funds – These fund specialize in fixed income sector – Within bond funds, there exists many categories – Funds may specialize in government bonds, or corporate bonds – Or they specialize in bonds of different maturities
  5. 5. • 3. Hybrid Funds (Balanced Funds) • Includes both bonds and equity funds • They are also called balanced funds • The main objective is to preserve capital and earn a return • Have a bit higher risk than the bond funds because of investment in equity
  6. 6. • 4. Equity funds • All investment is made in common stocks • Within equity funds, there can be growth funds or income funds • Growth funds have investment in stocks that have good growth potential (usually small firms) • Income funds have investment in stocks that provide consistent flow of income(usually large firms)
  7. 7. • 5. Sector funds • Some industries perform well in one stage of business cycle and others perform well in the other stages of business cycle • An investment company may have a mutual fund that specialize in any one sector • For example, a mutual fund may invest only in oil stocks
  8. 8. • 6. Index funds • An index fund tries to match the performance of a broad market index • The fund buys shares in securities in the proportion to the security’s representation in the index • It is an unmanaged fund and hence a low cost • Investors following passive strategy will invest in index fund
  9. 9. Mutual Funds returns • Mutual funds returns are expressed in total returns i.e. dividends and capital gains as a percentage of initial investment • A cumulative total return measures the actual performance over a stated period of time, 1 year, 3 years or 10 years • For example, a fund gave returns: • Past 1 year Past 5 Years Past 10 years • -10% 8.5% 180.5%
  10. 10. Mutual Fund Regulations • An Asset Management Company for every open-end & closed-end mutual fund shall appoint a trustee. • A trustee shall be a schedule bank, a foreign bank, an Investment company having minimum A+ rating from credit rating agency registered with the commission. • A central depository company approved by the commission can also be appointed as trustee.
  11. 11. • The trustee should be independent of the AMC. • The trustee should carry out the instructions of AMC in respect of investment unless they are in conflict with the any provision of the rules issued by the commission. • Units or certificates of an open-end or closed- end mutual fund shall not be offered to the public unless the schemes approved by the commission.
  12. 12. • Sale, purchase, issue and transfer of units certificates affected by the open-end or closed end schemes are carried out in accordance with the provisions of constitutive documents. • Open-end or closed-end mutual fund schemes should meet the minimum investment criteria specified by the commission under regulation 44(3)(e). • Should maintain proper books of accounts.

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