2. • A mutual fund is a financial intermediary which acts as an
instrument of investment.
MEACHANISM OF MUTUAL FUND OPERATIONS:
It collects funds from different investors to form a common pool of
investible funds. This corpus is then invested in a wide variety of
investment opportunities. Professional managers handle the corpus and
take different decisions from time to time. The investment may be
diversified to spread risk and to ensure a good return, i.e., in dividend
and capital terms, to the investors. The investors have to bear a small
cost for availing such services.
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3. WORKING OF MUTUAL FUNDS
Investors pool their
money with Mutual Fund
Fund Manager invests
pooled money in
securities according to a
common financial goal
Dividend Income and
Capital Appreciation are
generated
Returns are distributed
unitholders
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4. CHARACTERISTICS:
• Pool of financial resources
• Professionally managed
• Indirect investing
• Not a form of borrowing and lending relationship.
• Representative of Investors
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6. LIMITATIONS OF INVESTING IN MUTUAL FUND:
• No Direct Choice of Securities
• Relying on Mutual Funds Manager’s Performance
• High Management Fee and Other Expenses
• Lock-in-Period
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7. Mutual Fund
Schemes
On the basis of Life
Span
Close-Ended
Schemes
Open-Ended
Schemes
On the basis of
Income Mode
Income Schemes Growth Schemes
On the basis of
Portfolio
Equity Schemes Debt Schemes Balanced Schemes
On the bais of
Maturity of Schemes
Capital Market
Schemes
Money Market
Schemes
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8. Mutual Fund
Schemes
On the basis of
Sectors
Different Sectoral
Schemes
Load Basis
Load Schemes No Load Schemes
Special Schemes
Index Schemes Offshore Schemes
Gilt Securities
Schemes
Exchange Traded
Funds(ETF)
Fund of Funds
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9. SYSTEMATIC INVESTMENT PLAN(SIP)
• SIP allows investors to invest in mutual fund scheme, a pre-determined amount at a
regular interval( weekly, monthly, quarterly, etc.)
• SIPs are ideal for retail investors who do not have the resources to pursue active
investments.
• It is a simple strategy designed to help investors to accumulate wealth in disciplined
manner over long term.
• It is a planned approach towards investment and helps to inculcate the habit of
savings.
• Following benefits could be derived from SIP:
a) Rupee-Cost Averaging
b) Power of Compounding
c) Disciplined Savings
d) Flexibility
e) Long term Gains
f) Convenience
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10. SYTEMATIC WITHDRAWAL PLAN(SWP)
• SWP permits the investor to make an investment at one go and
systematically withdraw at periodic intervals, at the same time
permitting the balance amount to remain invested.
• It is suitable for those investors who are looking for regular income.
• SWP may be available in two options:
a) Fixed withdrawal, where a specified amount is withdrawn on monthly or
on quarterly basis, based on needs and investment goals of the investor.
b)Appreciation withdrawal, where 90%(or some other) of the appreciated
amount can be withdrawn on monthly/quarterly basis.
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11. SYSTEMATIC TRANSFER PLAN(STP)
• STP permits an investor to transfer his investment from one asset or asset
type into another asset or asset type.
SOURCE FUND TARGET FUND
• STP allows an investor to invest upfront in the source fund, out of which a
stipulated amount will be systematically transferred into the target fund at a
suggested frequency on a pre-specified date.
• STP can be used as a defensive strategy in a volatile market.
• Importance:
1. Saves time and effort.
2. Provides opportunity to earn a better return.
• Types:
1. FIXED STP
2. CAPITAL APPRECIATION STP
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12. EVALUATING PERFORMANCE OF MUTUAL FUNDS
1. NET ASSET VALUE
It refers to the ownership interest per unit of the mutual fund, i.e, NAV refers to the amount which a
unitholder would receive per unit if the scheme is closed.
𝑁𝐴𝑉 =
𝑁𝑒𝑡 𝐴𝑠𝑠𝑒𝑡 𝑉𝑎𝑙𝑢𝑒 𝑜𝑓 𝑡ℎ𝑒 𝐹𝑢𝑛𝑑
𝑁𝑜. 𝑜𝑓 𝑈𝑛𝑖𝑡𝑠 𝑂𝑢𝑡𝑠𝑡𝑎𝑛𝑑𝑖𝑛𝑔
.
Net Assets = Market Value of Investments + Receivables + Accrued Income + Other Assets – Accrued
Expenses – Payables – Other Liabilities
2. Costs Incurred by Mutual Fund
a. Initial Expenses attributable to establishing scheme.
b. On-going recurring expenses:
a. Cost of employing expert investment analyst
b. Cost of administration
c. Cost of advertisement
𝐸𝑥𝑝𝑒𝑛𝑠𝑒 𝑅𝑎𝑡𝑖𝑜 =
𝐸𝑥𝑝𝑒𝑛𝑠𝑒𝑠
𝐴𝑣𝑒𝑟𝑎𝑔𝑒 𝑎𝑠𝑠𝑒𝑡𝑠 𝑢𝑛𝑑𝑒𝑟 𝑚𝑎𝑛𝑎𝑔𝑒𝑚𝑒𝑛𝑡
Expenses Ration = Administrative and Advisory expenses, excludes the brokerage fee
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13. 3. RETURN FROM MUTUAL FUND
𝑅𝑒𝑡𝑢𝑟𝑛 =
𝐷𝑖𝑣 + 𝐶𝐺 + [𝑁𝐴𝑉1 − 𝑁𝐴𝑉0]
𝑁𝐴𝑉0
× 100
Where,
Div = dividends for the period
CG = captal gains realized
NAV1 = NAV at the end of the year
NAV0 = NAV at the beginning of the year
4. PERFORMANCE OF A MUTUAL FUND:
The performance of a mutual fund depends upon the performance of the
securities that make up the portfolio of the mutual fund.
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15. EVOLUTION OF MUTUAL FUNDS IN
INDIA
PHASES OF EVOLUTION
First Phase(1964-1987)
Launch of first scheme by
UTI, US-64, in 1964
Second Phase(19877-
1993)
Entry of Public Sector
Banks, LIC and GIC into
the mutual fund industry
Third Phase(1993-2003)
Entry of Private Sector in
mutual fund industry
Fourth Phase-Since
February 2003
Consolidation and growth
of mutual fund industry
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16. REGULATION OF MUTUAL FUNDS IN INDIA
• Mutual funds in India are regulated by the Securities and Exchange Board of India
(SEBI).
• Indian mutual funds are subject to stringent requirements about who is eligible to start
a fund, how the fund is managed and administrated and how much capital a fund
must have on hand.
• To start a mutual fund, for example, the fund sponsor must have been in the financial
industry for at least five years and have maintained positive net worth for the five years
immediately preceding registry.
• The SEBI regulations include a minimum startup capital requirement of Rs. 500 million
for open-ended debt funds and Rs. 200 million for closed-ended funds.
• In addition, Indian mutual funds are only allowed to borrow up to 20% of their value
for a term not to exceed six months to meet short-term liquidity requirements.
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17. MUTUAL FUND INVESTEMENT AND INVESTOR’S
PROTECTION IN INDIA
Investor protection legislation is implemented under the Section 11(2) of the SEBI Act. The
measures are as follows:
• Stock Exchange and other securities market business regulation.
• Registering and regulating the intermediaries of the business like brokers, transfer
agents, bankers, trustees, registrars, portfolio managers, investment consultants,
merchant bankers, etc.
• Recording and monitoring the work of custodians, depositors, participants, foreign
investors, credit rating agencies, etc.
• Registering investment schemes like Mutual fund & venture capital funds and
regulating their functioning.
• Promotion and controlling of self-regulatory companies.
• Keeping a check on frauds and unfair trading methods related to the securities market.
• Observing and regulating major transactions and take-over of the companies.
• Carry out investor awareness and education programme.
• Train the intermediaries of the business.
• Inspecting and auditing the security exchanges (SEs) and intermediaries.
• Assessment of fees and other charges.
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18. Thank You!
:Ms. Anvi Jain
Assistant Professor
Department of Commerce
Shaheed Bhagat Singh College
University of Delhi
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