3. Mutual funds
โข A 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.
โข In other words, A mutual is an investment
vehicle where many investors pool their money
to earn return on their capital over a period.
Concept
5. Sponsor:- promotor of the company, establishment the fund, registered with SEBI[securities and exchange
board of India], net worth must be positive in immediately preceding five years and must be provided
financial services,40% of net worth of AMC company should have contributed by sponsor.
Trustee:- hold assets on behalf of the unit holders in the trust, appoint AMC and
ensure in accordance with the SEBI regulations, appoint the custodian of the fund.
AMC[asset management company]:- floats schemes and manages
them in accordance with the SEBI regulations
Custodian:- holds the funds securities in safekeeping, collect interests and
dividends paid on securities, record information on stocks split and other
corporate actions.
7. Open ended funds:- No fixed
maturity date/period, accept
continuous sale and re-purchase
requests, transaction are NAV[net
asset value]-based, highly liquidity.
Closed ended funds:- Run for a
specific period, issue units of mutual
fund only in the beginning and
cannot redeem them, but redeem
through stock exchange only,
transaction are NAV and market
trending price, mostly liquidity.
Interval funds:- Both traits of
open and closed ended funds,
initial period is followed open
ended funds and after remaining
is followed closed ended funds.
10. Advantages and disadvantages of mutual funds
Collective savings schemes
Professional management
Portfolio diversification
Reduction of transaction costs
Liquidity
Transparency
Well regulated
Digital system
Convenience
Stability to stock market
No control over costs
No tailor made/customized portfolios
Delay in redemption
Poor management
Market risk
No trust
