Mutual funds allow investors to pool their money together into a portfolio that is professionally managed. The document discusses different types of mutual funds such as equity funds, bond funds, and balanced funds, which invest in a mix of equity and debt. It also discusses the structure of mutual funds in India, which follows a three-tier model consisting of sponsors, trustees, and asset management companies (AMCs). AMCs manage the day-to-day activities of the mutual fund and charge fees. Overall, the document provides an overview of what mutual funds are, how they work, their benefits, and the different parties involved in mutual funds.

2. Mutual Funds
❑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.
❑An equity fund would buy equity assets – ordinary
shares, preference shares, warrants etc.
❑A bond fund would buy debt instruments such as
debenture bonds, or government securities/money
market securities.
❑A balanced fund will have a mix of equity assets and
debt instruments.
❑Mutual Fund shareholder or a unit holder is a part
owner of the fund’s asset.

4. What is a Mutual Fund (MF)?
Common pool of funds contributed by investors and
invested in accordance to the objectives.
Investments are held in a trust of which the
investors alone are the joint beneficial owners.
Trustees oversee the management by investment
manager.

5. Myths about Mutual Funds
1.Mutual Funds invest only in shares.
2.Mutual Funds are prone to very high
risks/actively traded.
3.Mutual Funds are very new in the financial
market.
4.Mutual Funds are not reliable and people
rarely invest in them.
5.The good thing about Mutual Funds is that
you don’t have to pay attention to them.

6. Facts about Mutual Funds
1. Equity Instruments like shares are only a part of
the securities held by mutual funds. Mutual funds
also invest in debt securities which are relatively
much safer.
2. Mutual Funds are there in India since 1964. Mutual
Funds market has evolved in U.S.A and is there
for the last 60 years.
3. Mutual Funds are the best solution for people who
want to manage risks and get good returns.

7. How does a Mutual Fund Work?
• Pool of investors
money.
• Invested according
to pre-specified
investment
objectives.
• Benefits accrue to
those that
contribute to this
pool.
• There is thus
mutuality in the
contribution and the
benefit.
• Hence the name
‘mutual’ fund.

8. HISTORY OF MF’s
• History of MF’s can be discussed in two parts :
1) Emergence through public players; and
2) Emergence through private players

9. History of Mutual Funds
Phase I – 1964 – 87: In 1963, UTI was set up by Parliament
under UTI act and given a monopoly. The first equity fund
was launched in 1986.
Phase II – 1987 – 93: Non-UTI, Public Sector mutual funds.
Like-
• SBI Mutual Fund,
Canbank Mutual
Fund, LIC Mutual
Fund,
• Indian Bank Mutual Fund,
• GIC Mutual Fund
and PNB Mutual
Fund.

10. History of Mutual Funds
Phase III – 1993 – 96: Introducing private sector funds.
As well as open-end funds.
Phase IV – 1996: Investor friendly regulatory measures
Action taken by SEBI to protect the investor, and
To enhance investor’s returns through tax benefits.

11. Advantages of Mutual Funds
•Portfolio diversification: It enables him to hold a diversified investment
portfolio even with a small amount of investment like Rs. 2000/-.
•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.
•Reduction/Diversification of Risks: The potential losses are also
shared with other investors.
•Reduction of transaction costs: The investor has the benefit of
economies of scale; the funds pay lesser costs because of larger volumes
and it is passed on to the investors.
•Wide Choice to suit risk-return profile: Investors can chose the fund
based on their risk tolerance and expected returns.

12. Advantages of Mutual Funds
•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 closed-
ended fund.
•Convenience and Flexibility: Investors can easily transfer their
holdings from one scheme to other, get updated market information and
so on. Funds also offer additional benefits like regular investment and
regular withdrawal options.
•Transparency: Fund gives regular information to its investors on the
value of the investments in addition to disclosure of portfolio held by their
scheme, the proportion invested in each class of assets and the fund
manager's investment strategy and outlook

13. Mutual Funds Prove Best!
While instruments like shares give high returns at the cost of
high risk, instruments like NSC and bank deposits give lower
returns and higher safety to the investor.
Mutual Funds aim to strike a balance between risk and
return and give the best of both to the investor.

14. TYPES OF MUTUAL FUNDS

15. By Structure:
1. Open-ended Funds
2. Closed-ended Funds
3. Interval Funds

16. By Investment Objective:
• Growth Fund
• Income Fund
• Balanced Funds
• ELSS/tax benefit funds
• Index funds
• Gilt funds
• Money Market Funds

17. By Investment Speciality:
1. Sector Funds
2. Theme funds
3. Fund of fund
4. Contra fund

18. By Investment Risk:
1. High risk funds
2. Moderate risk fund
3. Low fund

20. Classification - Based on Structure
• No fixed maturity date.
• Accept continuous sale and re-purchase requests.
• Transactions are NAV-based.
• Unit capital is not fixed.
Open Ended
Funds
• Run for a specific period.
• Offered in an NFO but are closed for further purchases after
NFO.
• Unit capital is kept constant.
Closed
Ended Funds
• Variant of closed-ended funds.
• Becomes open-ended at specific intervals.
• Have to be mandatorily listed.
Interval
Funds

28. • Contra fund is an equity mutual fund in which the
fund manager invests mostly in equities of
companies that are not performing well in the
short term.
• The idea is that buying equity at a low price today
will be profitable in the long term when the
business problem is resolved and the stock will
witness a strong rally.
• In other words, this is a contrarian approach of
investing to buy equities at a low price today to
fetch great returns in the future.

30. Classification - Based on Investment Objective
• Invest in short and long term debt instruments.
• Aim to provide regular income.
Debt Funds
• Invest in equity securities.
• Aim to provide growth and capital appreciation over long
term.
Equity
Funds
• Invest in a combination of equity and debt securities.
• Proportion of equity and debt may vary.
• Aim to provide for both income and capital appreciation.
Hybrid
Funds

31. Classification - Based on Investment Style
• Replicate a market index.
• Invest in same securities and in same proportion as that of
index.
• No active selection of any stock / sector.
• Expenses are lower.
• Portfolio is modified every time index composition changes.
Passive
Funds
• Invests in securities and sectors that may offer a better
return than the index.
• Actively manage the allocation to market securities and cash.
• May perform better or worse than the market index.
• Incur a higher cost than passive funds.
Active
Funds

32. Based on Geography

33. Investment Modes in Mutual Funds
16
• One time investment.
• Usually, large sum of money is invested in one go.
• Investor faces risk of volatility in markets.
Lump-sum
Investment
• Staggered Investment.
• Period of commitment - 6 months, 1 / 3 / 5 years.
• Specific intervals - monthly, quarterly, half-yearly.
• Made on specific dates e.g. 1st, 5th, 10th, 15th of
every month.
Systematic
Investment
Plan (SIP)

34. Open ended Schemes Vs Closed ended Schemes
BASIS FOR COMPARISON OPEN-ENDED FUNDS CLOSED-ENDED FUNDS
Meaning Open-ended funds
can be understood
as the schemes that
offer new units to
the investors on a
continuous basis.
Closed-ended funds
are the mutual
funds, which offer
new units to
investors for a
limited period only.
Subscription These funds are
available throughout
the year for
subscription.
These funds are
available only during
specified days for
subscription.
Maturity There is no fixed
maturity.
Fixed maturity
period, i.e. 3 to 5
years.
Liquidity provider Funds itself Stock market

35. Corpus Variable Fixed
Listing No listing on stock
exchange,
transactions are
performed directly
through fund.
Listed on a
recognized stock
exchange for
trading.
Transaction Executed at the
end of the day.
Executed in real
time.
Determination of
price
Price equal to Net
Asset Value
subject to Load
feature
Price is
determined by
supply and
demand.( Discount
or premium to
BASIS FOR COMPARISON OPEN-ENDED FUNDS CLOSED-ENDED FUNDS

36. Mutual Fund Structure
Fund Sponsor
Trustees
Asset Management
Company
Depository
Custodian
Agent

38. Structure Of Mutual Funds In India
• Mutual Funds in India follow a 3-tier structure.
• The first tier is the sponsor who thinks of starting the
fund.
• The second tier is the trustee. The Trustees role is not to
manage the money. Their job is only to see, whether the
money is being managed as per stated objectives.
Trustees may be seen as the internal regulators of a
mutual fund.
• Trustees appoint the Asset Management Company
(AMC) who form the third tier, to manage investor’s
money. The AMC in return charges a fee for the
services provided and this fee is borne by the investors
as it is deducted from the money collected from them

39. Sponsor

40. Sponsor
• Any corporate body which initiates the launching
of a mutual fund is referred to as “The sponsor”.
• The sponsor is expected to have a sound track
record and experience in financial services for a
minimum period of 5 years and should ensure
various formalities required in establishing a
mutual fund.
• According to SEBI, the sponsor should have
professional competence, financial soundness and
reputation for fairness and integrity.
• The sponsor contributes 40% of the net worth of
the AMC. The sponsor appoints the trustee, The
AMC and custodians in compliance with the
regulations.

41. Trustee

42. Trustee
• Sponsor creates a public trust and appoints trustees.
Trustees are the people authorized to act on behalf of
the Trust. They hold the property of mutual fund.
• Once the Trust is created, it is registered with SEBI after
which this trust is known as the mutual fund.
• The Trustees role is not to manage the money but their
job is only to see, whether the money is being managed
as per stated objectives. Trustees may be seen as the
internal regulators of a mutual fund.
• A minimum of 75% of the trustees must be
independent of the sponsor to ensure fair dealings.
• Trustees appoint the Asset Management Company
(AMC), to manage investor’s money.
• The operations of the mutual fund trust are governed

43. Trustees
Rights of Trustees:
•
•
Approve each of the schemes floated by the AMC.
The right to request any necessary information from the
AMC.
May take corrective action if they believe that the
conduct of the fund's business is not in accordance with
SEBI Regulations.
Have the right to dismiss the AMC,
Ensure that, any shortfall in net worth of the AMC is
made up.
•
•
•

44. Asset Management Company (AMC)
• Trustees appoint the Asset Management Company
(AMC), to manage investor’s money. The AMC in
return charges a fee for the services provided and this
fee is borne by the investors as it is deducted from the
money collected from them.
• The AMC’s Board of Directors must have at least 50%
of Directors who are independent directors. The AMC
has to be approved by SEBI.
• The AMC functions under the supervision of it’s Board
of Directors, and also under the direction of the
Trustees and SEBI.
• It is the AMC, which in the name of the Trust, floats
new schemes and manage these schemes by buying and
selling securities. In order to do this the AMC needs to
follow all rules and regulations prescribed by SEBI and
as per the Investment Management Agreement it

45. AMC cont-
• The role of the AMC is to manage investor’s money
on a day to day basis. Thus it is imperative that
people with the highest integrity are involved with
this activity.
• The AMC cannot deal with a single broker beyond
a certain limit of transactions.
• The AMC cannot act as a Trustee for some
other Mutual Fund.
• Appointments of intermediaries like
independent financial advisors (IFAs), national
and regional distributors, banks, etc. is also
done by theAMC.
• Finally, it is the AMC which is responsible for the
acts of its employees and service providers.

46. What is an Asset Management Company
(AMC)?
• Investment manager of the mutual fund.
• Appointed by the trustees, with SEBI approval.
• Trustees and AMC enter into an investment management agreement.
• Required to invest seed capital of 1% of amount raised subject to a maximum of Rs.50 lakh in
all open-ended schemes.
• Should have a net worth of at least Rs.50 crore at all times.
• At least 50% of members of the board of anAMC have to be independent.
• AMC of one mutual fund cannot be anAMC or trustee of another fund.
• AMCs cannot engage in any business other than that of financial advisory and investment
management

47. Custodian
offer etc and act on these as per instructions of the investment manager.

48. Registrar & Transfer Agents (RTA)
redemption, exit load, etc. is all taken care by the RTA.

49. • The registrar and transfer agents are appointed by
theAMC. AMC pay compensation to these agents
for their services. They carry out the following
functions
• Receiving and processing the application forms of
investors
• Issuing unit certificates
• Sending refund orders
• Giving approval for all transfers of units and
maintaining records
• Repurchasing the units and redemption of units
KARVY and Computer Age Management Service
(CAMS) Pvt. Ltd.- popular Registrar and RTA

51. 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.

52. Structure of Mutual Fund

54. Exchange traded funds
• An exchange-traded fund (ETF) is an investment
fund traded on stock exchanges, much like
stocks.
• An ETF holds assets such as stocks,
commodities, or bonds, and trades close to its
net asset value over the course of the trading day.
• Most ETFs track an index, such as a stock index
or bond index.
• ETFs may be attractive as investments because
of their low costs, tax efficiency, and stock-like
features. ETFs are the most popular type of
exchange-traded product.

55. What is an ETF? Two great investment ideas
brought together
ETFs
Diversified
Tradable
during the day
Diversified funds
that trade like
stocks
Mutual Fund
Stock

56. Mutual Fund Plans

57. Growth Plan
• Growth plan of a mutual fund does not
offer any payout.
• Profits made on the portfolio are
necessarily ploughed back into the
scheme.
• These growth plans are continuous
compounders of wealth.

58. Dividend Payout Plan
• In this plan, the fund declares dividends out of
profits. A fund can pay dividends only out of
profits and not out of capital.
• That is applicable to equity funds and to debt
funds.
• The NAV of the dividend plan reduces to the
extent of the dividends paid, which is why you will
find the NAV of a dividend fund always lower than
a growth plan.

59. Dividend Reinvestment Plan
• In a dividend plan, the dividends are paid
out in cash to the unit holders.
• However, in the dividend reinvestment plan,
the mutual fund buys units to the extent of
the dividend declared by the fund at the
post-dividend NAV and credits units to the
account.

60. • Gains made in portfolio are retained and reflectedin NAV.
• Realized profit/loss is treated as capital gains or loss.
• No increase or decrease in number of units, except if units
are purchased or sold, by the investor.
Growth
Option
• Fund declares dividend from realized profits.
• Amount and frequency varies and depends upon distributable
surplus.
• NAV falls after dividend payout to the extent of dividend paid.
Dividend
Payout
Option
• Dividend is re-invested in same scheme by buying additional
units at ex-dividend NAV.
• Number of units standing to the credit of the investor,
increases each time a dividend is declared, and reinvested
back into the scheme.
Dividend
Reinvestment
Option

61. Particulars Growth Plan
Dividend Payout
Plan
Dividend
Reinvestment Plan
Units Bought 10000 10000 10000
Date of Purchase
NAV
Jan 1, 2018 Jan 1, 2018 Jan 1, 2018
Purchase NAV ₹10 ₹10 ₹10
Invested Amount ₹1,00,000 ₹1,00,000 ₹1,00,000
NAV as on Dec 31,
2018
₹14 ₹14 ₹14
Value of Investment ₹1,40,000 ₹1,40,000 ₹1,40,000
Dividend Declared N.A. ₹2 ₹2
Dividend Paid Out N.A. ₹20,000 N.A.
Units Issued in Lieu
of Dividends
N.A. N.A. 1666.67#
Post Dividend NAV ₹14 ₹12 ₹12
Post Dividend Units 10000 10000 11666.67
Post Dividend Value ₹1,40,000 ₹1,20,000 ₹1,40,000
# – Dividend of 20,000 (10,000 x 2) will entitle him to 1666.67 units to 20,000 /NAV
of ₹12

62. • Systematic Investment Plan (SIP) is an option
where you invest a fixed amount in a mutual fund
scheme at regular intervals.
• For example, you can invest 1,000 in a mutual
fund every month. It is a disciplined investment
plan and helps reduces vulnerability to market
fluctuations.
• SIP investments can help you reach your financial
goals by taking advantage of rupee cost
averaging, and growing your investments with
compounding benefits.

63. What is a Systematic Withdrawal Plan ?
• An SWP allows an investor to withdraw a
designated sum of money and units from the fund
account at pre-defined regular intervals.
• It allows investors a certain level of independence
from market instability and helps in avoiding
market timing. The investor can reinvest the
redeemed cash in another portfolio or use it as a
source of regular income on a monthly or quarterly
basis.
• SWP is also available in two options: Fixed
Withdrawal and Appreciation Withdrawal

64. Switch in Mutual Fund schemes
• Mutual fund investors have the option to “switch” or move
from one mutual fund scheme to another, as long as it is in
the same fund house. When an investor switches, the AMC
redeems the units from the existing fund and purchases
units of the same value in a new fund that they choose on
the same day.
• Investors can use the switch option to transfer funds from
one scheme to another to rebalance their portfolio.
• The switch option is available only within the same fund
house. For instance, let’s assume Aman had 1,000 units in
ICICI Prudential All Seasons Bond Fund. He can only
switch to another fund from ICICI Prudential.
• From a taxation point of view, switching from one scheme
to another is considered to be separate sale and purchase
transactions. Capital gains tax on sale of units will apply.

65. Cost of Investing in Mutual Fund
• Mutual Fund companies collect an amount from
investors when they join or leave a scheme. This
fee is generally referred to as a 'load’.
• Entry load can be said to be the amount or fee
charged from an investor while entering a scheme
or joining the company as an investor.
• Exit load is a fee or an amount charged from an
investor for exiting or leaving a scheme or the
company as an investor.

66. Annual Recurring Expenses
1. Management fees is the most significant charge and
includes the expertise and financial analysis required for
professional fund management
2. Marketing and selling expenses including advertisement
and sales commission to distributors
3. Fees of custodians and registrar and transfer agents for
fund administration