Mutual funds


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Jobi Mathai

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Mutual funds

  2. 2. Introduction• Mutual funds are financial intermediaries which collects funds from the public and invest them in a diversified portfolio of securities, including equity, bonds, debentures and other instruments issued by business or govt: undertakings.• Helps small investors to participate in the securities market indirectly & thus help in spreading & reducing risk.
  3. 3. Contd….• Direct participation in securities market is not attractive to small investors because of the introduction of proportionate allotment, the increase in the minimum application amount to Rs. 5000 and the free pricing of issues. Investment through Mutual funds enables the investors to maximize the return on the investment in equity shares.
  4. 4. In simple words…• Mutual funds collects the savings from small investors, invest them in govt: & other corporate securities and earn income through interest and dividends, besides capital gains.
  5. 5. Definition.• The Securities and Exchange Board of India (Mutual funds) Regulations, 1993 defines a Mutual funds as a “ fund established in the form of a trust by a sponsor, to raise monies by the trustees through the sale of units to the public, under one or more schemes, for investing in securities in accordance with these regulations.
  6. 6. Mutual funds• Unit trust in U.K.• Open end investment companies in the U.S.A
  7. 7. Organization of Mutual funds• Mutual fund organization consists of :a) Sponsor.b) Mutual fund Trust.c) Asset Management Company (AMC) &d) Custodian.
  8. 8. Sponsor• Sponsor for the Mutual funds could be a company registered under the Companies Act Mutual funds , 1956.• Can be either public ltd company or a pvt ltd company.• One or more public ltd companies and a pvt ltd companies can join to sponsor a Mutual fund.
  9. 9. Contd..• The sponsor should satisfy certain conditions like:• Track record• Experience in the relevant field of financial services for a minimum period of 5 years.• Financial soundness etc.• Should be able to contribute not less than 40 per cent of the net worth of the asset management company.
  10. 10. Contd..• Sponsors have to appoint the fund managers or the asset management company.• But after obtaining permission from SEBI the role of sponsor diminishes and it is the trust that will deal with SEBI after that stage.
  11. 11. Mutual fund Trust.• Created by the sponsors under the Indian Trust Act,1882. Functions:a. Planning & formulating Mutual fund schemes.b. Obtaining SEBI’s approval for these schemes.c. Marketing the schemes for public subscription.d. Ensuring that AMC complies with the guidelines, and report periodically to the unit holders of the Mutual funds .
  12. 12. Mutual fund Trust.e. Ensuring that investments by AMC are according to prescribed guidelines.f. Ensuring that the securities are safety kept in custody with the approved custodian.g. Ensuring that the income on investment is properly accounted.h. Submitting an annual report to the unit holders or members of the fund.
  13. 13. Asset Management Company (AMC)• Investing of collected funds is the responsibility of the AMC.• Takes investment decisions and makes investment either directly in the primary market or through brokers in the secondary market.• Duty to maintain proper accounts and give necessary information regarding investments and fund management operations to the trustees.
  14. 14. Custodian• The Custodians have the custody of investments.• Duty to check and verify the securities.• Also deal with transfer of shares, settlements etc.• Acts as an transfer agents by attending to transfer, exchange, redemption, receipt of dividends, maintenance of detailed records of transactions etc.
  15. 15. Working of Mutual fundsi. It collects money from the investors under different schemes.ii. Investing the money so collected in various instruments like stocks and bonds of different corporates and govt: units.iii. Distribution of profits to the investors or members of the Mutual fund. According to SEBI guidelines the Mutual funds have to distribute 90% of their earnings.