This document provides information about mutual funds in India. It discusses the history of mutual funds in India which is divided into four phases from 1964 to the present. It also describes the different types of mutual funds based on structure (open ended, close ended, interval funds), investment objectives (growth, income, balanced, etc.), and others (tax saving, thematic, etc.). The advantages and disadvantages of mutual funds are outlined. Exchange traded funds and asset management companies are also explained. Methods of evaluating mutual fund performance like Sharpe's and Treynor's models are mentioned. Regulations around investment limits for mutual funds are provided.

1. SUBMITTED TO:- Mrs. PRIYANKA
SUBMITTED BY:- Miss. SHRUTI KUMARI

2. MUTUAL FUNDS
What is mutual fund?
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.

3. History of mutual funds
The history of mutual funds in India is divided
into 4 phases.
1. Phase I(1964-87):- In 1963, Unit Trust of India (UTI) was
set up by Parliament under UTI act and given a monopoly.
The first equity fund was launched in 1986.
2. Phase II(1987-93):- Entry of Non-UTI, Public Sector mutual
funds Like- SBI Mutual Funds, Canbank Mutual Fund, LIC
Mutual Fund, Indian Bank Mutual Fund, GIC Mutual Fund
and PNB Mutual Fund.
3. Phase III(1993-2003):- Introducing private sector funds as
well as open-end funds.
Kothari Pioneer mutual fund was the first entrant.

4. History of mutual funds
 Investor friendly regulatory measures and action taken by
SEBI to protect the investor and to enhance investor’s returns
through tax benefits
4. Phase IV(2003 onwards):- In February 2003 by repealing
the Unit Trust of India Act 1963 UTI was bifurcated into two
separate entities.
i. One is the Specified Undertaking of the Unit Trust of
India functioning under an administrator and under the rules
framed by Government of India.
ii. The second is the UTI Mutual Fund Ltd, sponsored by SBI,
PNB,BOB and LIC. It is registered with SEBI and functions
under the Mutual Fund Regulations.

5. Types of mutual fund
MUTUAL
FUNDS
ON THE BASIS
OF STRUCTURE
1) Open Ended
2) Close Ended
3) Interval Funds
INVESTMENT
OBJECTIVES
1) Growth Funds
2) Income Funds
3) Balanced Funds
4) Hybrid Funds
5) Value Funds
6) Index Funds
7) Gilt funds
OTHERS
1) Tax Saving funds
2) Special Funds
3) ETFs
4) Thematic Funds

6. OPEN-ENDED MUTUAL FUND
 An open-ended Mutual fund is one that is available for
subscription and repurchase on a continuous basis. These
Funds do not have a fixed maturity period.
 These funds can be redeemed on continuous basis.
 Investors can buy these fund related schemes on Net Asset
value (NAV) basis.

7. CLOSE-ENDED MUTUAL FUND
 A close-ended Mutual fund 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.
 These mutual fund schemes are listed on recogniszed stock
exchange.

8. Interval fund
 Interval fund combine the characteristics of both close-end
and open-end mutual funds. In other words interval funds
are the hybrid of close-end and open-end mutual fund.
 They are the schemes whose units can be bought and sold
only during a specified time interval, which is
predetermined by the fund house.
INTERVA
L FUND
CLOSE-END
FUND
OPEN-END
FUND

9. GROWTH FUNDS
 The aim of growth funds is to provide capital appreciation
over the medium to long- term.
 Such funds have comparatively high risks.
 These schemes provide different options to the investors
like dividend option, capital appreciation, etc.

10. money funds
 These funds are also income funds and their aim is to
provide easy liquidity, preservation of capital and moderate
income.
 These schemes invest exclusively in safer short term
instruments such as treasury bills, commercial paper and
government securities, etc.
 These funds are appropriate for corporate and individual
investors as a means to park their surplus funds for short
periods.

11. Balanced funds
 The aim of balanced funds is to provide both growth and
regular income as such schemes invest both in equities and
fixed income securities in the proportion indicated in their
offer documents.
 These are appropriate for investors looking for moderate
growth.

12. Index funds
 This schemes invest in the securities in the same weight
age comprising of an index.
 This schemes would rise or fall in accordance with the rise
or fall in the index
 These funds invest exclusively in government securities.
 Government securities have no default risk.
gilt funds

13. Advantages of mutual fund
 Professional Management:-The investment management skills, along with
the needed research into available investment options, ensure a much better return as
compared to what an investor can manage on his own.
 Minimization of risk:- The potential losses are also shared with other
investors.
 Portfolio diversification:- It enables him to hold a diversified investment
portfolio even with a small amount of investment like Rs. 2000/-.
 Low Costs Liquidity:- Investors may be unable to sell shares directly,
easily and quickly. When they invest in mutual funds, they can cash their
investment any time by selling the units to the fund if it is open-ended and
get the intrinsic value. Investors can sell the units in the market if it is close
ended fund.
 Tax benefits:-Some times the investors investing their money in the
mutual funds to get some tax benefits.

14. Disadvantages of mutual fund
 No control over costs:- The investor pays investment management fees
as long as he remains with the fund, even while the value of his investments
are declining. He also pays for funds distribution charges which he would
not incur in direct investments.
 No tailor-made portfolios: The very high net-worth individuals or large
corporate investors may find this to be a constraint as they will not be able to
build their own portfolio of shares, bonds and other securities.
 Managing a portfolio of funds:- Availability of a large number of funds
can actually mean too much choice for the investor. So, he may again need
advice on how to select a fund to achieve his objectives.
 Delay in redemption:- It takes 3-6 days for redemption of the units and
the money to flow back into the investor’s account.

15. Exchange trade fund
 An ETF can be described as a pooled investment vehicle
with units that can be bought or sold throughout the trading
day on a stock exchange at a market determined price that
is close to its net asset value (NAV).
OR
 Exchange Traded Funds (ETFs) are mutual fund units
which investors buy or sell from the stock exchange, as
against a normal mutual fund unit, where the investor buys
/ sells through a distributor or directly from the AMC.

16. Characteristics of ETFs
 An Exchange Traded Fund (ETF) is essentially a scheme
where the investor has to buy/ sell units from the market
through a broker (just as he would by a share).
 An investor must have a demat account for buying and
selling ETFs.
 An important feature of ETFs is the huge reduction in
costs. While a typical Index fund would have expenses in
the range of 1.5% of Net Assets, an ETF might have
expenses around 0.75%

17. Mutual fund v/s ETfs
Forecast Mutual Funds ETFs
Trading time Trade at closing NAV Trade during trading day
Cost Operating expenses vary Low operating expenses
Investment amount Most have investment
minimums
No investment minimums
Tax efficiency Less tax-efficient Tax-efficient
Sales load May have sales load No sales loads

18. Asset management company
 Acts as an invest 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.

19. Asset management company
Obligation of Asset Management Company:
 Float investment schemes only after receiving prior approval from
the Trustees and SEBI.
 Send quarterly reports to Trustees.
 Make the required disclosures to the investors in areas such as
calculation of NAV and repurchase price.
 Must maintain a net worth of at least Rs. 10 crore at all times.
 Will not purchase or sell securities through any broker, which is
average of 5% or more of the aggregate purchases and sale of
securities made by the mutual fund in all its schemes.
 AMC cannot act as a trustee of any other mutual fund.
 Do not undertake any other activity conflicting with managing the
fund.

20. Evaluation of Mutual Funds
 It is essential that the performance of Mutual fund is evaluated
and appraised. Such appraisal helps the fund to compare itself
with other funds besides being a potential source of
information to the present and prospective investors.
 Evaluation includes simple evaluation tools to sophisticated
models which take into consideration the risk and uncertainty
associated with the returns. Some of the models used are
Treynor’s Model and Sharpe’s Model

21. Sharpe’s Performance Index
It offers a single value for performance ranking of different
funds or portfolio. It measures the risk premium of the
portfolio in terms of its total risk.
Sharpe’s Index =Average portfolio return – Risk free rate of return
Standard Deviation of Portfolio
= Rp – Rf
σp

22. Treynor’s Performance Index
Here the fund’s performance is measured against the
market performance. It is used to calculate return per unit
of market risk.
Treynor’s Index = Average portfolio return – Risk free rate of return
Market risk of Portfolio
= Rp – Rf
βp

23. Regulation of Mutual Fund
Regulations ensure that schemes do not invest beyond a certain percent of
their NAVs in a single security.
Some of the guidelines regarding these are given below:
 No scheme can invest more than 15% of its NAV in rated debt
instruments of a single issuer. This limit may be increased to 20% with
prior approval of Trustees.
 This restriction is not applicable to Government securities.
 No scheme can invest more than 10% of its NAV in unrated paper of a
single issuer and total investment by any scheme in unrated papers
cannot exceed 25% of NAV .
 No fund, under all its schemes can hold more than 10% of company’s
paid up capital
 No scheme can invest more than 10% of its NAV in a single company.

24. Regulation of Mutual Fund
 If a scheme invests in another scheme of the same or different AMC, no
fees will be charged. Aggregate inter scheme investment cannot exceed
5% of net asset value of the mutual fund
 No scheme can invest in unlisted securities of its sponsor or its group
entities.
 Schemes can invest in unlisted securities issued by entities other than the
sponsor or sponsor’s group. Open ended schemes can invest maximum of
5% of net assets in such securities whereas close ended schemes can invest
upto 10% of net assets in such securities
 Schemes cannot invest in listed entities belonging to the sponsor group
beyond 25% of its net assets

25. Regulation of Mutual Fund
 If a scheme invests in another scheme of the same or different AMC, no
fees will be charged. Aggregate inter scheme investment cannot exceed
5% of net asset value of the mutual fund
 No scheme can invest in unlisted securities of its sponsor or its group
entities.
 Schemes can invest in unlisted securities issued by entities other than the
sponsor or sponsor’s group. Open ended schemes can invest maximum of
5% of net assets in such securities whereas close ended schemes can invest
upto 10% of net assets in such securities
 Schemes cannot invest in listed entities belonging to the sponsor group
beyond 25% of its net assets

26. SEBI Mutual Fund
Regulations
 The regulations governing the functioning of mutual funds in
India were introduced by SEBI in Dec 1996. The objectives of
these regulations was to bring in existence the regulatory
norms for the formation, operation and management of mutual
funds in India. The regulations also laid down the broad
guidelines on investment valuation, investment restriction,
advertising code and code of conduct for mutual funds and
AMCs.

27. Registration of mutual funds
 Every mutual fund shall be registered with SEBI through an
application to be made by the sponsor in a prescribed format
accompanied by an application fee of Rs.25000.
 Every mutual fund shall pay Rs.25lakhs towards registration
fee and Rs:2.5lakhs per annum as service fees.
 Registration shall be granted by the board on fulfillment of
conditions such as sponsor’s, sound track record of 5yrs
integrity, net worth etc.

28. Regulations for the trust
 Mutual fund shall be constituted in the form of a trust under the provisions of
Indian Registrations Act and provisions laid down by SEBI.
 A trustee should be person of integrity, ability, and should not have been
found guilty or being convicted of any economic offence or violation of
securities law.
 At least 50% of the trustees shall be independent trustees.
 The trustees and the AMC with SEBI’s prior approval shall enter into an
investment management agreement.
 The trustees shall ensure the AMC has the necessary infrastructure and
personnel.
 The trustees shall ensure that AMC is monitoring security transaction with
brokers.
 The trustees shall ensure that the EMC has been managing the scheme
independently.
 The trustees should fulfill all its duties in order to protect the interest of the
investors.

29. Regulations for AMC
 It should have a sound track record, reputation and fairness in transaction.
 The sponsor or trustee shall appoint an AMC with SEBI’s approval.
 The appointment of the AMC can be terminated by majority of trustees or by
75% of unit holders.
 The directors of AMCs should have adequate professional experience.
 At least 50% of the director’s of the AMC should not be associated with the
sponsors or it’s subsidiaries or the trustees.
 The chairman of the AMC should not be trustee of any other mutual fund.
 The AMC shall have a minimum net worth of Rs.10 crore
 TheAMC shall not act as an AMC for any other mutual funds.

30. Regulations for custodians
The mutual fund shall appoint a custodian to carry
out the custodian services for the schemes of the
fund.
The agreement with the custodian shall be entered
into with prior approval of trustees

31. THANKS