The document provides an overview of mutual funds in India, including their history, structure, guidelines, terms, types of funds, ratios, taxation, and future outlook. Some key points: - A mutual fund pools money from investors and invests it in stocks, bonds, and other securities to generate returns. Returns and capital appreciation are shared proportionally by unit holders. - SEBI regulates the mutual fund industry and has established a three-tier structure of sponsors, trustees, and asset management companies. - There are various types of mutual funds that invest in different asset classes like equity, debt, hybrid, and money market instruments. Expense ratios, loads, and taxation vary across fund types.

2.  INTRODUCTION
 HISTORY
 PROS AND CONS
 STRUCTURE
 SEBI GUIDELINES
 TERMS RELATED TO MF
 TYPES
 RATIOS
 MF TAXATION
 FUTURE OF MUTUAL FUND INDUSTRY

3. • Requirement of
Capital
• Time
• Expertise
• Lack of Information
• Portfolio
• Volatility

4. PRODUCT RETURN SAFETY LIQUIDITY TAX
BENEFI
T
CONVINIENC
E
BANK DEPOSIT LOW HIGH HIGH NO HIGH
EQUITY HIGH LOW HIGH OR
LOW
NO MODERATE
DEBT MODERATE MODERATE LOW NO LOW
PPF MODERATE HIGH LOW YES MODERATE
LIFE INSURANCE MODERATE HIGH LOW YES MODERATE
NSC MODERATE HIGH LOW YES MODERATE
MUTUAL FUNDS
(OPEN ENDED)
MODERATE MODERATE HIGH NO HIGH
MUTUAL FUNDS
(CLOSE ENDED)
MODERATE MODERATE HIGH YES HIGH

5. 5
Safety
You get your
money back
Liquidity
You get your money back when
you want it
Plus Convenience
How easy is it to invest,
disinvest and adjust to
your needs?
Post-tax Returns
How much is really left for you post tax?

7. • A mutual fund is the trust that pools the savings of a number
of investors who share a common financial goal.
• The money thus collected is then invested in capital
market instruments such as shares, debentures and other
securities.
• The income earned through these investments and the
capital appreciation realized are shared by its unit
holders in proportion to the number of units owned by
them.

11. • First Phase – 1964-87 -Unit Trust of India (UTI) was
established on 1963 by an Act of Parliament.
• Second Phase – 1987-1993 (Entry of Public Sector
Funds) -SBI Mutual Fund was the first non- UTI
Mutual Fund established in June 1987

12. • Third Phase – 1993-2003 (Entry of Private Sector
Funds) Kothari Pioneer (now merged with Franklin
Templeton) was the first private sector mutual fund
registered in July 1993.
• Fourth Phase – since February 2003 -In February 2003,
following the repeal of the Unit Trust of India Act 1963
UTI was bifurcated into two separate entities.

14. • Professional Management
• Diversification
• Convenient Administration
• Return potential
• Low cost
• Liquidity
• Transparency
• Flexibility
• Choice of schemes
• Well regulated
• Tax benefits

15.  Purchase and withdrawal costs
 Ongoing management fees
 Potential poor performance
 No control over capital gains distribution
 Complicated tax reporting issues
 Potential market risk with all investments
 Some sales personnel are aggressive

16.  Investment Performance and Risk
 Sector Performance
 Management Fees and Expense Ratio
 Cash Flows

17.  (AUM) represents the money which is managed by
a mutual fund in a scheme
 AUM = Net Asset Value * the number of units issued
by that scheme
 A change in AUM can happen either because of fall in
NAV or redemptions.

21. MF should have the following 3-tier structure, they are:
 Sponsor
 Trustee / Trust
 Asset Management Company
 Custodian and other parties

23.  Akin to the promoter of the company
 Contributes atleast 40% of the net worth of the AMC.
 Posses sound financial record over five years period
 Establishes the fund
 Gets the fund registered with SEBI
 Forms a trust and appoints a board of trustee

24.  Holds assets on behalf of unit holders in trust
 Trustees are caretaker of unit holders money.
 Two third of the trustees shall be independent persons (not
associated with the sponsor).
 Trustees ensure that the system, processes & personnel are
in place
 Resolves Unit holders Grievances
 Appoint AMC and custodian

25.  Floats schemes and manages according to SEBI.
 Chairman of AMC cannot be a trustee of any MF.
 Cannot undertake any other business activity other than PMS
 Atleast 50% of independent directors

26.  Holds the funds securities in safekeeping
 Settles securities transaction for the fund
 Collects interest & dividends paid on securities
 Records information on corporate actions

27.  Maintains records of unit holders accounts and transactions
 Disburses & receives funds from unit holder transactions
 Prepares and distributes a/c settlements
 Tax information, handles unit holder communication
 Provides unit holder transaction services

28.  Incorporated on 22 Aug, 1995
 Modeled on the lines of SRO
 Professional and healthy market
 Protects and promotes the interest of investors

29.  Formation of trust.
 Set up of board of trustees
 Minimum net worth of the AMC should be 10 crs
 AMC and trustees – 2 separate entities
 Approval of SEBI
29

30.  Registration of MF schemes
 90% minimum distribution of profits
 A common format to disclose their entire portfolios on half-
yearly basis
 fully revise and update offer document and memorandum at least
once in two years
 Bring uniformity in disclosures of various categories of
advertisements
 Reduce initial offer period from a maximum of 45 days to 30
days

31.  Dispatch statements of account once the minimum subscription
amount specified in the offer document is received
 Invest in mortgaged backed securities of investment grade given
by credit rating agency.
 Identify and make provisions for the non-performing assets
(NPAs)
 Disclose information in a revised format on unit capital, reserves,
performance in terms of dividend and rise/fall in NAV during the
half-year period, annualized yields over the last 1, 3, 5 years in
addition to percentage of management fees etc.
 Declare their NAV s and sale/repurchase prices of all schemes
updated daily on regular basis on the AMFI website by 8.00 p.m.
and declare NA V s of their close ended schemes on every
Wednesday

32.  un-audited half-yearly results are to be published before the
expiry of one month from the close of each half-year
 All the schemes by mutual funds shall be launched within six
months from the date of the letter containing observations from
SEBI on the scheme offer document
 Mutual funds are required to disclose large unit-holdings in the
scheme, which are over 25% of the NAV

33.  Mutual, beneficial and proportional owners
 Receive dividend within 30 days of declaration
 In case of redemption, 10 working days. If the
AMC fails, an interest of 15% is paid.
 In case of failure to claim the redemption
proceeds, then NAV is applicable
33

34.  Right to receive audited annual reports and other
relevant information
 Right to wound up a scheme if unit holders representing
75% of scheme’s assets pass a resolution
 Right to be informed about the fundamental attributes of
a scheme
 Can approach Investor relations officer for grievance
redressal
34

35.  NFO is launched in the market to raise capital
 AMC launches new schemes, under the name of the Trust
 NFOs are offered for a stipulated period.
 Investors can invest in these schemes at the offer price
(most cases Rs 10) for stipulated period only.
 After the NFO period, investors can take exposure in
these funds only at the prevailing NAV.

36. • Discloses important information about the investment instrument.
• SEBI’s format for offer document includes:
o Date of publication, name and type
of scheme
o Investment objective
o Risk factor
o Historic stats
o Features and plans of scheme
o Management of funds
o Information about load and
expenses
o Investment restrictions
o Turnover of portfolio
o Unitholders’ rights
o Tax treatments
o Valuation policy
o NAV
o Minimum investment

37.  NAV represents a fund's per share market value.
 Price at which investors buy ("bid price") fund shares
from a fund company and sell them ("redemption price")
to a fund company.
 NAV computation is undertaken once at the end of each
trading day based on the closing market prices of the
portfolio's securities.
Market value of the funds investments + Receivables +
Accrued Income – (Liabilities + Accrued expenses)
_________________________________________________
Number of units outstanding

39. LIABILITIES RS
CRS
ASSETS RS
CRS
UNIT CAPITAL 300 SHARES 345
RESERVES AND SURPLUS 85.7 DEBENTURES 23
MONEY MARKET INSTRUMENTS 12
ACCRUED EXPENDITURE 1.5 ACCRUED INCOME 2.3
OTHER CURRENT LIABILITIES 0.5 OTHER CURRENT ASSETS 1.2
DEFERRED REVENUE
EXPENDITURE
4.2
387.7 387.7
UNITS ISSUED (Cr.) 30
FACE VALUE (RS.) 10
NET ASSETS (RS.) 385.7
NAV (RS.) 12.86 39
RETURN
OF 28.57%

40. TRANSACTION
FEES
PERIODIC FEES
LOADS
OTHER
OPERATING
EXPENSES
EXPENSES
40

41. 41
Transaction Fees
Purchase Fees
Redemption Fees
Exchange Fees
Periodic fees
Management fees
Account fees
 Other operating
expenses
Transaction costs

42.  LOAD
 NO LOAD
42
Load is fee payable by the investor when they enter/exit
an MF scheme

43.  A measure of what it costs an investment company to
operate a mutual fund.
 Expense ratio= fund's operating expenses /average
dollar value of its AUM
 largest component of operating expenses is the fee paid
to a fund's investment manager/advisor

44. HEDGE
FUNDS
PRIVATE
EQUITY
FUNDS
VENTUR
E
CAPITAL
FUNDS
MUTUAL
FUNDS
Investment Tradable
securities
Private
companies
Start ups Stocks, bonds,
derivatives etc
Risk Very high medium High Low
Availability Only to HNI’S Everyone Everyone Everyone
Tenure shorter Longer (5-8) Medium (3-5)
44

46.  Equity funds
 Money market mutual funds
 Debt funds
 Hybrid funds
 Gilt funds
 Other funds
46

47. Diversified Equity Fund: These funds aim to diversify the
investments across companies and across sectors.
Small and Mid-Cap Funds: These funds are aggressive in their
investment nature with an aim to generate long term appreciation
from a portfolio that is substantially constituted of equity and
equity related securities, which are not part of top 100 stocks.
Sector Specific Funds: These invest into sectors which are
mentioned in their objective or offer documents, such as banking,
FMCG, etc.
Tax Saving Funds (ELSS): It offers tax rebates to investor u/s
80C of I. T. Act.
47

48. SBI Blue Chip Fund(G)

49.  Also known as Money Market Schemes
 These funds provide easy liquidity and preservation of capital.
 These schemes invest in short-term instruments like Treasury
Bills, inter-bank call money market, CPs and CDs.
 These funds are meant for short-term cash management of
corporate houses and are meant for an investment horizon of 1
day to 3 months.
49

50. JPMorgan India Liquid Fund

51. Gilt Funds: Invest their corpus in securities issued by government. These
funds carry zero default risk but are associated with Interest Rate Risk.
Income Funds: Invest a major portion into various debt instruments such
as bonds, corporate debentures and government securities.
Monthly Income Plan (MIPs): MIPS invests maximum of their total
corpus in debt instruments while they take minimum exposure in equities.
It gets benefit of both equity and debt market.
Short Term Plans (STPs): These investments are meant for a horizon of
three to six months. These funds primarily invest in short term papers like
Certificate of Deposits (CDs) and Commercial Papers (CPs)
51

52. HDFC High Interest Fund

54.  Systematic investment plan (SIP)
- Investor can invest in fixed amount every month for a
pre-decided period of time. Usually 6months or 1year.
- Helps investor to average out the cost of investment
 Systematic withdrawal plan (SWP)
- Minimize the risk of redeeming all the units
- Meets liquidity needs for regular expenses
- Profits are regularly encashed by the investor
 Systematic Transfer plan (STP)

55. Average unit cost to investor = Rs. 11.86 (60000/5058.35)
Average unit price to investor = Rs. 11.91 (Avg. of unit
prices)

56.  Systematic withdrawal plan (SWP)
- Minimize the risk of redeeming all the units
- Meets liquidity needs for regular expenses
- Profits are regularly encashed by the investor

58.  Systematic Transfer plan (STP)
- Amount withdrawn is reinvested in some other scheme
of same MF

59. Example – How does a Systematic Transfer Plan work
This is best understood using an example. Say you want to
transfer2,000 from an equity MF scheme to a debt MF
scheme every month.
Month 1
Equity MF units before transfer: 1,000
Debt MF units before transfer: 0
Equity MF unit NAV:20
Debt MF unit NAV:15
Equity MF units needed (redeemed from your account)
=2,000 /20 = 100
Debt MF units allotted =2,000 /15 = 133.33
Equity MF units after transfer = 1000 – 100 = 900
Debt MF units after transfer= 0 + 133.33 = 133.33
59

60. Month 2
Equity MF units before transfer: 900
Debt MF units before transfer: 133.33
Equity MF unit NAV:22
Debt MF unit NAV:16
Equity MF units needed ( redeemed from your account)
=2,000 /22 = 90.91
Debt MF units allotted =2,000 /16 = 125
Equity MF units after transfer = 900 – 90.91 = 809.09
Debt MF units after transfer = 133.33 + 125 = 258.33
And so on…
60

61.  To attract Risk averse investors
 Scheme aims at protecting initial capital investment
and does not guarantee returns

62.  Example :
1) If you invest Rs. 100 ; after 1 year returns is 20% so
end of the year it becomes Rs. 100 + 20= Rs. 120.
2) Now second year also you make a profit of 20% so
your money is Rs. 120 + 24 = Rs. 144
3) After 2 years your money of Rs. 100 is now Rs. 144 so
your
Absolute returns for 2 years is 44% whereas Annualized
returns is 20% year on year.
62

63.  SEBI regulation on disclosure in offer document,
advertisment etc.
 Steps:
 calculate growth in number of units (dividend re-
invested)
 calculate opening wealth
 calculate closing wealth

64.  Returns
◦ XIRR
◦ Dividend Re-investment
(CAGR)
◦ Compounding of Periodic
Returns
• Risk
◦ Standard Deviation
◦ Alpha
◦ Beta
◦ Weighted Average
Maturity
◦ Modified Duration
 Risk Adjusted Returns
◦ Sharpe Ratio
◦ Sortino Ratio
◦ Treynor Ratio
◦ Jensen’s Alpha

65. 65
The compounded annual
growth rate (CAGR) can be
calculated as follows:
CAGR =
100 X {(I2 ÷ I1) (1÷r)}-1
i.e. 100 X {(19,127 ÷
14,000)(365÷382} - 1
i.e. 34.74%

66.  It is rate of return for the period of holding
 Also known as total return or point to point returns.
 HPR = {[INCOME+(END PRICE – BEGINNING
PRICE)]*BEGINNING PRICE}*100
 HPR ={ [2+(12-10)]/10}*100 = 40%
DIVIDEND 2 HPR 40%
BEG.PRICE 10
ENDPRICE 12
HOLDINGPERIOD 1YEAR

67. 67

68. 68
The compounded annual growth rate (CAGR)
can be calculated as follows:
CAGR = 100 X {(I2 ÷ I1) (1÷r)}-1
i.e. 100 X {(19,127 ÷ 14,000)(365÷382} - 1
i.e. 34.74%

69.  difference between the returns an investor expects from a fund
 Alpha = {(Fund return-Risk free return) – (Funds beta)
*(Benchmark return- risk free return)}
 Fund return (Fund performance in last one year): 75%
Risk free return: 8%
Benchmark return (Sensex performance in last one year): 41%
Beta: 0.69
Alpha=0.44 for this fund.
 A positive alpha means the fund has outperformed its
benchmark index

70.  Market risk is measured by Beta
 It relates the return of a stock or mutual fund to a market index
 Reflects the sensitivity of a fund’s return to fluctuations in
market index
 Calculation of Beta: Y = a + βX
 Beta = 1 indicates -security's price will move with the market.
 Beta < 1 means security will be less volatile than the market.
 Beta > 1 indicates that the security's price will be more volatile
than the market.
 Eg- if a stock's beta is 1.2, it's 20% more volatile than the
market.

71.  It quantifies how a fund performs relative to the risk it
takes
 Sharpe index measures risk premium of a portfolio,
relative to the total amount for risk in the portfolio
Sharpe Index =(Rp) – (Rt)/ Standard Deviations
of the Portfolio Return
Portfolio Average Return (Rp)
Risk Free Rate of Interest (Rt)
71

72. 72

73.  Beta compares a fund's returns with a benchmark, standard
deviation measures how far a fund's recent numbers stray from
its long-term average.
 Fund X has a 10% average rate of return and a standard
deviation of 5%, most of the time, its return will range from 5%
to 15%.
 Large standard deviation supposedly shows a more risky fund
than a smaller one
 Higher the deviation, higher the risk & vice versa.
 It is calculated by taking the square root of variance.
73

74. 74

75. 75
Fixed rate debt instruments have a price risk. When interest rates in the market
go up, the debt instruments already issued, based on the erstwhile lower interest
rates, lose value. Similarly, when interest rates in the market go down fixed rate
debt instruments gain value.

76. 76
The implication is that if the yields in the market were
to change by 1%, this debt security is likely to change in
value by 1.68%.

77. 77
S(market) = (.10-.05)/.18 = .278
S(manager X) = (.14-.05)/.11 = .818
S(manager Y) = (.17-.05)/.20 = .600
S(manager Z) = (.19-.05)/.27 = .519

78.  (Portfolio Return – Risk-Free Rate) / Beta
 The numerator identifies the risk premium and the
denominator corresponds with the risk of the portfolio. The
resulting value represents the portfolio's return per unit risk
78

79.  Now, you can compute the Treynor value for each:
T(market) = (.10-.05)/1 = .05
T(manager A) = (.10-.05)/0.90 = .056
T(manager B) = (.14-.05)/1.03 = .087
T(manager C) = (.15-.05)/1.20 = .083
79

80. Alpha is the risk-adjusted return on an investment
 Alpha demonstrates whether your investment
outperformed or underperformed a risk-related
benchmark
 The formula for alpha is expressed as follows:
a = Rp – [Rf + (Rm – Rf) ß]
Where:
 Rp = Realized return of portfolio
 Rm = Market return
 Rf = risk-free rate
80

81.  First, we calculate the portfolio's expected return:
ER(D)= .05 + 0.90 (.10-.05) = .0950 or 9.5% return
ER(E)= .05 + 1.10 (.10-.05) = .1050 or 10.50% return
ER(F)= .05 + 1.20 (.10-.05) = .1100 or 11% return
Then, we calculate the portfolio's alpha by subtracting the expected
return of the portfolio from the actual return:
Alpha D = 11%- 9.5% = 1.5%
Alpha E = 15%- 10.5% = 4.5%
Alpha F = 15%- 11% = 4.0%
81

82. EQUITY
DEBT
GOLD OTHERS
82

83. • Securities are valued at the last
quoted closing price on the stock
exchange.
TRADED
• Trades less than Rs. 5 lakh in
value and 50,000 shares in
volume.
• Valued as per appropriate
valuation methods
NON
TRADED
83

84. • Valued at weighted average price.
• If not traded on a particular day,
then on Amortization basis.
RESIDUAL
MATURITY
OF UPTO 91
DAYS
• Valued at weighted average price.
• If not traded on a particular day,
then on YTM basis.
RESIDUAL
MATURITY
OF OVER 91
DAYS
84

85. Securities Valuation
Government Securities Yield to Maturity Basis at prevailing market price
Instruments acquired on
‘Repo’ Basis
Resale price after reducing interest applicable up to the
date of sale
Rights issue When rights are traded: V = n/m * (P-R)
When rights are renounced/not subscribed for: Price of
renouncement
Gold – Gold Exchange
Traded Schemes (GFTS) /
Exchange Traded Funds
(EFTS)
Based on prices fixed by London Bullion market
Association (LBMA) in USD per ounce
V = Value of rights
n = No. of rights offered
m = No. of original shares
P = Ex-Rights Price
R = Rights issue price

88.  Capital asset typically refers to anything that you own for
personal or investment purposes.
 Capital assets are further classified as Financial Assets and Non-
Financial Assets.
 The profit (if any) that you make on your mutual fund
investments when you redeem or sell the MF units is referred to
as Capital Gains. It can be a Short Term Capital Gain (STCG) or
a Long Term Capital Gain (LTCG) depending upon the ‘Period
of Holding’. The tax that is applicable on these profits is known
as ‘Capital Gains Tax’.

89. • Long Term Capital Gains
• If you make a gain / profit on your investment in a Equity
Mutual Fund scheme that you have held for over 1 year, it
will be classified as Long Term Capital Gain.
• If you make a gain / profit on your investment in a Non-
Equity Mutual Fund scheme (or in a Debt Fund) that you
have held for over 3 years, it will be classified as Long Term
Capital Gain.
• Short Term Capital Gains
• If your holding in a Equity mutual fund scheme is less than 1
year i.e. if you withdraw your mutual fund units before 1
year, after making a profit, then the profit will be considered
as Short Term Capital Gain.
• If you make a gain / profit on your Debt fund (or other than
equity oriented schemes) that you have held for less than
36 months (3 years), it will be treated as Short Term Capital
Gain.

90. Capital Gain Taxation applicable to Equity Oriented Schemes
Resident Individual
/ HUF
Domestic Corporates NRI
Long Term Capital
Gains (Units held for
more than 12
months)
NIL NIL NIL
Tax deducted at
Source = NIL
Tax deducted at
Source = NIL
Tax deducted at
Source = NIL
Short Term Capital
Gains (Units held for
12 months or less)
15% + 12%
Surcharge + 3% Cess
= 17.304%
15% + Surcharge as
applicable + 3% Cess
= 17.304% or
16.5315%
15% + 12%
Surcharge + 3% Cess
= 17.304%
Tax deducted at
Source = NIL
Tax deducted at
Source = NIL
Tax deducted at
Source = 17.304%

91. Capital Gain Taxation applicable to Schemes other than equity oriented
schemes
Resident Individual /
HUF
Domestic
Corporates
NRI
Long Term Capital Gains
[Units held for more than
36 months] (Listed Units)
20% with indexation + 12%
Surcharge + 3% Cess
= 23.072%
20% with indexation +
Surcharge as applicable +
3% Cess
= 22.042% or 23.072%
20% with indexation +
12% Surcharge + 3%
Cess
= 23.072%
Tax deducted at Source =
NIL
Tax deducted at Source =
NIL
Tax deducted at Source
= 23.072%
Long Term Capital Gains
[Units held for more than
36 months] (Unlisted
Units)
20% with indexation + 12%
Surcharge + 3% Cess
= 23.072%
20% with indexation +
Surcharge as applicable +
3% Cess
= 22.042% or 23.072%
10% without indexation
+ 12% Surcharge + 3%
Cess
= 11.536%
Tax deducted at Source =
NIL
Tax deducted at Source =
NIL
Tax deducted at Source
= 11.536%
Short Term Capital Gains
(Units held for less than 36
months)
30%^ + 12% Surcharge +
3% Cess = 34.608%
30% + Surcharge as
applicable + 3% Cess =
34.608% or 33.063%
30%^ + 12% Surcharge
+ 3% Cess = 34.608%
Tax deducted at Source =
NIL
Tax deducted at Source =
NIL
Tax deducted at Source
= 34.608% (Listed and
Unlisted) ^

92.  The securities transaction tax (STT) was introduced in India a few years
ago, to stop tax avoidance of capital gains tax.
 Transactions in stock, index options and futures would also be subject to
transaction tax. Tax is applicable whether you buy or sell the securities.
 STT is levied on every purchase or sale of securities that are listed on the
Indian stock exchanges. This would include shares, derivatives or equity-
oriented mutual funds units.
 The rate of tax that is deducted is determined by the central government,
and it varies with different types of transactions and securities.
 STT is deducted at source by the broker or AMC, at the time of the
transaction itself, the net result is that it pushes up the cost of the
transaction done.

93. Transaction Rates Payable By
Purchase/ Sale of equity shares 0.1% Purchaser/
Seller
Purchase of units of equity oriented mutual fund Nil Purchaser
Sale of units of equity oriented mutual fund 0.001% Seller
Sale of an option in securities 0.017% Seller
Sale of an option in securities, where option is
exercised
0.125% Purchaser
Sale of a futures in securities 0.010% Seller
Sale of units of an equity oriented fund to the Mutual
Fund
0.001% Seller

94.  Diverse range of products
 Stringent regulations for MF Distributors
 Eligibility norms of AMC may be revised
 Trading through stock exchange platforms
94

95.  Growth of Real Estate Mutual Funds
 Expansion of MF network in Tier II cities & rural areas
due to increased level of awareness
95