Sudhansu Sekhar patro
Dhruva college of management
A mutual fund is a professionally managed
type of collective investment scheme that
pools money from many investors and invests
it in stocks, bonds, short-term money market
instruments and other securities.
Mutual fund in India is having different stages• Phase-1 (1964-87)(mf in India with the setting up
UTI in 1963)
• Phase-2(1987-92)(in 1987, SBI mutual funds and
bank mutual fund were set up as trust under the
India trust act, 1882 and SEBI maintain the rule
relation between sponsor and asset
• Phase-3(1992-97)(SEBI issued the mutual fund
regulation in January 1993)
• Phase-4(beyond 1997)(mutual fund can invest
money mobilized under any or its scheme only in
securites,money market instrument, gold
Professional management- lack of knowledge in investments. MF are
managed by professional manager to make a investment strategy for
Portfolio diversification- MF lets investments in different companies
so that the risk is less.
Reduction in transaction cost- compared to direct investing in the
capital market, investing through the funds is relatively less
expensive as the benefit of economics of scale is passed on the
Liquidity- investors cannot sell the securities easily, while MF can
easily raise the money by selling units to public in case of open
ended. And in case of close ended they sell in stock exchange
Convenience – investing in MF reduces paperwork, saves time and
make investment easy
Tax benefits- MF investors enjoy the tax benefits. Dividend received
from mutual fund and debt scheme are exempted up to 1,00,000 u/s
80 C of the income tax.
In function point of viewopen-ended schemes
in investment point of viewequity
Open ended scheme- open-ended schemes are those schemes
where investors can redeem and buy new units all throughout
the year as per their convenience at NAV – related price.
Investors can enter and exit the scheme any time during the
life of the fund . Open ended schemes do not have a fixed
corpus. The corpus of fund increases or decreases , depending
on the purchase or redemption of units by investors.
Close-ended scheme- close ended schemes are open for
subscription only for a specified period and have a fixed
corpus and a stipulated maturity period ranging between 2
years to 5 years. investors in close ended schemes can buy
units only from the market, once initial subscription are over
and thereafter the units are listed on the stock exchange
where they can be bought and sold. Close ended funds give
an option of selling back the units to mutual fund through
periodic re-purchase at NAV related price . The NAV closeended fund schemes are disclosed on weekly basis.
Interval scheme- interval scheme combines the features of
open-ended scheme and close-ended schemes. They are open
for sale at NAV- related price.
In investment point of view Equity fund- if fund of a particular scheme are invested in
equity shares , then it is an equity fund. Equity fund are
Debt fund- if fund of a particular scheme are invested in debt
instrument , then it is a debt fund.
Income fund- this fund provide safety investments and regular
income to investors. Instruments are
bonds, debentures, government securities.
Index fund- Index fund is a mutual fund which invests in
securities in the index on which it is based- BSE sensex or S&P
CNX Nifty .
The Fund Sponsor
Any person or corporate body that establishes
the Fund and registers it with SEBI.
Form a Trust and appoint a Board of Trustees.
Appoints Custodian and Asset Management
Company either directly or through Trust, in
accordance with SEBI regulations.
SEBI regulations also define that a sponsor must
contribute at least 40% to the net worth of the
asset management company.
A mutual fund in India is constituted in the form of a public
trust created under the Indian trust Act, 1882.
The sponsor form the trust and registers it with the SEBI.
The fund sponsor acts as the settler of the
trust, contributing the capital and appoints a trustee.
The trust deed deal with the establishment of the trust
, the authority and responsibility of the trustee towards
the AMC.(asset management company )
Example- Reliance mutual fund has been established as a
trust under the Indian trust Act,1882. , with Reliance
Capital Limited as the sponsor and Reliance capital trustee
as the trustee.
The trustee appoint the asset management company with the
prior approval of the SEBI.
The AMC registered under company Act, 1956
Investment management agreement is executed between the
trustee and AMC to manage the mutual fund. It charges fee
for the services it render to the mutual fund trust.
It act as a investment manager to the trust under the
supervision and direction of the trustee.
The AMC of a MF must have a netwoth of at least Rs 10 crore
at all times and this net worth should be in the form of cash .
It cannot act as a trustee of any other MF.
It required to disclose the scheme particular and base of
calculation of NAV
Examples- HDFC asset management company limited act as a
asset management company for the HDFC mutual fund .
• Has the responsibility of physical handling and safe
keeping of the securities.
• Should be independent of the sponsors and registered with
• Indian capital markets are moving away from physical
certificates for securities to ‘dematerialized’ form with a
• Will hold the dematerialized security holdings of the
- Agents Is a broker between the fund and the investor and
acts on behalf of the principal.
He is not exclusive to the fund and also sells other
financial services. This in a way helps him to act as a
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