2. Definition
• A mutual fund is a professionally-managed
investment scheme, usually run by an asset
management company that brings together a
group of people and invests their money in
stocks, bonds and other securities.
3. History
• The first modern investment funds were
established in the Dutch Republic. In response
to financial crisis of 1772-1773.
• Abraham van Ketwich formed a trust named
Eendragt Maakt Magt (unity creates strength).
• His aim was to provide small investors with an
opportunity to diversify.
4. Continued
• Mutual funds were first introduced in the 1890s.
Earlier these were close-end funds with a fixed
number of shares.
• The first open-end mutual funds was established
on March 21, 1924 as the Massachusetts
Investors Trust.
• In U.S. Closed-end funds remained more popular
than open-end funds throughout 1920s. In 1929
open-end funds accounted only 5% of total
industry, $27 billion in total assets.
5. Continued
• After the Wall Street Crash of 1929, the U.S,
Congress passed a series of acts regulating the
securities markets in general and Mutual Fund in
particular.
1. The Securities Act of 1933,
2. The Securities and Exchange Act of 1934,
3. The Revenue Act of 1936,
4. The Investment Company Act of 1940.
• These new regulations encouraged the
development of open-end funds.
6. Continued
• The growth in U.S. MF industry was limited by
1950s.
• By 1970, there were approximately 360 funds
with $48 billion in assets.
• The introduction of money market funds in
late 1970s boosted the industry growth.
• In 2003, the mutual fund industry was
involved in a scandal involving unequal
treatment of fund shareholders.
7. Continued
• At the end of 2016
1. United States: $18.9 trillion
2. Luxembourg: $3.9 trillion
3. Ireland: $2.2 trillion
4. Germany: $1.9 trillion
5. France: $1.9 trillion
6. Australia: $1.6 trillion
7. United Kingdom: $1.5 trillion
8. Japan: $1.5 trillion
9. China: $1.3 trillion
10. Brazil: $1.1 trillion
• Worldwide assets were $40.4 trillion.
8. Mutual Fund in India
• Mutual Fund first introduced in 1963, when
the Government of India launched Unit Trust
of India (UTI).
• UTI enjoyed a monopoly in the Indian MF
market until 1987.
• In 1987 other government-controlled Indian
financial companies established their own
funds.
• As per June 2013 there are 46 Mutual Funds.
9. Mutual Funds are under-tapped
market in India
• Less than 10% of Indian Household have invested
in Mutual funds due to their high risk and lack of
information on how mutual funds work.
• The primary reason for not investing appears to
be correlated with city size. Close to 40% of those
who live in metros and Tier I cities considered
such investments to be very risky, whereas 33%
of those in Tier II cities said they did not know
how or where to invest in such assets.
10. Distribution
• Mutual Funds in India are being distributed by
various channels. For example Corporate
Distributors, Individual Distributors , Post Offices
and Banks.
• All these distribution channels are broadly
classified into two types:
1. One who sells fund with low expense ratio but the
charges from the customer on their on their own,
and
2. Another who sells fund with high expense ratio and
get paid back as commission; they don’t charge any
fees from customers.
11. Regulation of Mutual Funds
• Mutual Funds are registered with SEBI.
• Mutual Funds in India are governed by the
Securities Exchange Board of India M.F.
Regulations 1996 with the exception of Unit
Trust of India (UTI) as it was created by the UTI
Act passed by the Parliament of India.
12. Some SEBI regulation for Mutual Funds
• SEBI takes care of the track record of a
Sponsor, integrity in business transactions and
financial soundness while granting permission.
• As per the current SEBI guidelines, mutual
funds must have a minimum of Rs. 50 crore
for an open-ended scheme, and Rs. 20 crore
corpus for the closed-ended scheme.
• SEBI inspects mutual funds every year to
ensure compliance with the regulations.
13. Feature of Mutual Funds
1. Portfolio Diversification/Risk Diversification,
2. Professional Management,
3. Affordability,
4. Liquidity,
5. Transparency,
6. Regulations,
7. Choice of Investment, and.
8. Minimizing Costs.
14. Advantages of Mutual Funds
1. Liquidity
2. Diversification
3. Expert Management
4. Less cost for bulk transactions
5. Cost-efficiency
6. Automated payments
7. Tax-efficiency
15. Disadvantages of Mutual Funds
1. Costs to manage the mutual fund
2. Lock-in Periods
3. Dilution
17. How to Invest?
• One can invest in MFs using any of below options:
1. Agents
• These are sales professionals who reach out to potential
customers and inform them on the different fund options.
• You can choose based on your income, investment goal
and risk profile.
• The agent can help you with applications, redemption,
transactions and cancellation among others.
• They charge commissions for their services.
18. Continued
2. Direct Investment
• Investors can directly contact fund houses to apply for
a scheme and save on brokerage. Get the form from
the nearest branch of the fund house or download it
online.
3. Online (Distributors/Fund Houses)
• Buying/selling a mutual fund unit online is almost the
norm today. This not only saves time and effort but also
makes it easy to compare funds and make informed
decisions.
• Just enter your details and make the online payment in
less than 5 minutes.
