Successfully reported this slideshow.
We use your LinkedIn profile and activity data to personalize ads and to show you more relevant ads. You can change your ad preferences anytime.
It is not wise to put all eggs in one 
basket
Mutual Funds Overview 
 A mutual fund is a common pool of money into which 
investors place their contributions that are ...
History of Mutual Funds 
 Phase I – 1964 – 87: In 1963, UTI was set up by 
Parliament under UTI act and given a monopoly....
 Phase III – 1993 – 96: Introducing private 
sector funds. As well as open-end funds. 
 Phase IV – 1996: Investor friend...
Myths 
 Mutual Funds invest only in shares. 
 Mutual Funds are prone to very high 
risks/actively traded. 
 Mutual Fund...
Facts 
 Equity Instruments like shares are not only 
a part of the securities held by mutual 
funds. It also also invest ...
Types of Mutual Funds 
1. Schemes according to Maturity Period: 
A mutual fund scheme can be classified into open-ended sc...
2. Schemes according to 
Investment Objectives 
 Growth / Equity Oriented Scheme 
 Income / Debt Oriented Scheme 
 Bala...
3. Load or no-load Fund 
 Mutual funds incur certain expenses such as brokerage, 
marketing expenses, and communication e...
Calculation of NAV 
NAV = Total market value of assets under management - liabilities 
Number of mutual fund units outsta...
Advantages of MF 
 Affordability 
A mutual fund invests in a portfolio of assets, i.e. bonds, shares, etc. 
depending upo...
 Transparency 
Being under a regulatory framework, mutual funds have to disclose 
their holdings, investment pattern and ...
Risks associated 
 Costs – The biggest source of AMC income is 
generally from the entry & exit load which they charge 
f...
Organisation Structure of Mutual 
Funds
Fund Sponser 
 Any person or corporate body that establishes 
the Fund and registers it with SEBI. 
 Form a Trust and ap...
Trustees 
 Created through a document called the Trust 
Deed that is executed by the Fund Sponsor 
and registered with SE...
 Rights of Trustees: 
• Approve each of the schemes floated by the 
AMC. 
• The right to request any necessary informatio...
 Obligations of the Trustees: 
 Enter into an investment management agreement with 
the AMC. 
 Ensure that the fund's t...
Asset Management Company 
• Acts as an investment manager of the Trust 
under the Board Supervision and direction of 
the ...
 Custodian 
• Has the responsibility of physical handling and safe 
keeping of the securities. 
• Should be independent o...
Mutual Funds Overview
Upcoming SlideShare
Loading in …5
×

Mutual Funds Overview

485 views

Published on

Overview and basic introduction of the mutual funds industry

Published in: Economy & Finance
  • Be the first to comment

  • Be the first to like this

Mutual Funds Overview

  1. 1. It is not wise to put all eggs in one basket
  2. 2. Mutual Funds Overview  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.  An equity fund would buy equity assets – ordinary shares, preference shares, warrants etc.  A bond fund would buy debt instruments such as debenture bonds, or government securities/money market securities.  A balanced fund will have a mix of equity assets and debt instruments.  Mutual Fund shareholder or a unit holder is a part owner of the fund’s asset.
  3. 3. History of Mutual Funds  Phase I – 1964 – 87: In 1963, UTI was set up by Parliament under UTI act and given a monopoly. The first equity fund was launched in 1986.  Phase II – 1987 – 93: Non-UTI, Public Sector mutual funds. Like-SBI Mutual Fund, Canara bank Mutual Fund, LIC Mutual Fund, Indian Bank Mutual Fund, GIC Mutual Fund and PNB Mutual Fund.
  4. 4.  Phase III – 1993 – 96: Introducing private sector funds. As well as open-end funds.  Phase IV – 1996: Investor friendly regulatory measures Action taken by SEBI to protect the investor, and enhance investor’s returns through tax benefits.
  5. 5. Myths  Mutual Funds invest only in shares.  Mutual Funds are prone to very high risks/actively traded.  Mutual Funds are very new in the financial market.  Mutual Funds are not reliable and people rarely invest in them.  The good thing about Mutual Funds is that you don’t have to pay attention to them.
  6. 6. Facts  Equity Instruments like shares are not only a part of the securities held by mutual funds. It also also invest in debt securities which are relatively much safer.  Mutual Funds are there in India since 1964. Mutual Funds market has evolved in U.S.A and is there for the last 60 years.  Mutual Funds are the best solution for people who want to manage risks and get good returns.
  7. 7. Types of Mutual Funds 1. Schemes according to Maturity Period: A mutual fund scheme can be classified into open-ended scheme or close-ended scheme depending on its maturity period.  Open-ended Fund/ 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 prices.  Close-ended Fund/ Scheme A close-ended fund or scheme has a stipulated maturity period e.g. 5-7 years. The fund is open for subscription only during a specified period at the time of launch of the scheme. Investors can invest in the scheme at the time of the initial public issue and thereafter they can buy or sell the units of the scheme on the stock exchanges where the units are listed.
  8. 8. 2. Schemes according to Investment Objectives  Growth / Equity Oriented Scheme  Income / Debt Oriented Scheme  Balanced Fund  Gilt Fund  Sector specific funds/schemes
  9. 9. 3. Load or no-load Fund  Mutual funds incur certain expenses such as brokerage, marketing expenses, and communication expenses. These expenses are known as ‘load’.  A Load Fund is one that charges a percentage of NAV for entry or exit. That is, each time one buys or sells units in the fund, a charge will be payable. This charge is used by the mutual fund for marketing and distribution expenses. Suppose the NAV per unit is Rs.10. If the entry as well as exit load charged is 1%, then the investors who buy would be required to pay Rs.10.10 The investors should take the loads into consideration while making investment as these affect their yields/returns. A no-load fund is one that does not charge for entry or exit. It means the investors can enter the fund/scheme at NAV and no additional charges are payable on purchase or sale of units.
  10. 10. Calculation of NAV NAV = Total market value of assets under management - liabilities Number of mutual fund units outstanding Suppose there are 10 investors investing 1,00,000Rs each Total Investment- 10 L Unit value of Scheme 10/unit No of units allotted to each investor – 10,000 Investment of each Investor- 10,000*10=1,00,000 Total Units- 10,00,000/10 = 1,00,000 Now lets say that after 1 year the invested values grows to 14,00,000 from10,00,000 NAV = 14,00,000/1,00,000 = 14 NAV has become 14 now from 10 Any new Investor wanting to invest in this scheme will get each unit at 14 not at 10
  11. 11. Advantages of MF  Affordability A mutual fund invests in a portfolio of assets, i.e. bonds, shares, etc. depending upon the investment objective of the scheme. An investor can buy in to a portfolio of equities, which would otherwise be extremely expensive. Each unit holder thus gets an exposure to such portfolios with an investment as modest as Rs.5000/-.  Diversification We must spread our investment across different securities (stocks, bonds, money market instruments, real estate, fixed deposits etc.) and different sectors (auto, textile, information technology etc.).  Variety Mutual funds offer a tremendous variety of schemes.  Professional Management Qualified investment professionals who seek to maximize returns and minimize risk monitor investor's money.
  12. 12.  Transparency Being under a regulatory framework, mutual funds have to disclose their holdings, investment pattern and all the information that can be considered as material, before all investors. SEBI acts as a watchdog and safeguards investors’ interests  Liquidity A distinct advantage of a mutual fund over other investments is that there is always a market for its unit/ shares. It's easy to get one’s money out of a mutual fund. Redemptions can be made by filling a form attached with the account statement of an investor.
  13. 13. Risks associated  Costs – The biggest source of AMC income is generally from the entry & exit load which they charge from investors, at the time of purchase. The mutual fund industries are thus charging extra cost under layers of jargon.  Dilution - Because funds have small holdings across different companies, high returns from a few investments often don't make much difference on the overall return.  Taxes - when making decisions about your money, fund managers don't consider your personal tax situation. For example, when a fund manager sells a security, a capital-gain tax is triggered, which affects how profitable the individual is from the sale.
  14. 14. Organisation Structure of Mutual Funds
  15. 15. Fund Sponser  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 Trustee , in accordance with SEBI regulations.
  16. 16. Trustees  Created through a document called the Trust Deed that is executed by the Fund Sponsor and registered with SEBI.  The Trust- may be managed by a Board of Trustees- a body of individuals or a Trust Company- a corporate body.  Protector of unit holders interests.  2/3 of the trustees shall be independent persons and shall not be associated with the sponsors.
  17. 17.  Rights of Trustees: • Approve each of the schemes floated by the AMC. • The right to request any necessary information from the AMC. • May take corrective action if they believe that the conduct of the fund's business is not in accordance with SEBI Regulations. • Have the right to dismiss the AMC, • Ensure that, any shortfall in net worth of the AMC is made up.
  18. 18.  Obligations of the Trustees:  Enter into an investment management agreement with the AMC.  Ensure that the fund's transactions are in accordance with the Trust Deed.  Furnish to SEBI on a half-yearly basis, a report on the fund's activities  Review the investor complaints received and the redressal of the same by the AMC.
  19. 19. Asset Management Company • Acts as an investment manager of the Trust under the Board Supervision and direction of the Trustees. • Has to be approved and registered with SEBI. • Will float and manage the different investment schemes in the name of Trust and in accordance with SEBI regulations. • Acts in interest of the unit-holders and reports to the trustees. • At least 50% of directors on the board are independent of the sponsor or the trustees.
  20. 20.  Custodian • Has the responsibility of physical handling and safe keeping of the securities. • Should be independent of the sponsors and registered with SEBI.  Depositories • Indian capital markets are moving away from physical certificates for securities to ‘dematerialized’ form with a Depository. • Will hold the dematerialized security holdings of the Mutual Fund.

×