Mutual funds are collective investment vehicles pooling resources from various investors to invest in securities based on a stated objective, offering both returns through dividends and capital appreciation. The Indian mutual fund industry began in 1963, with significant regulatory developments leading to growth and diversification of fund types by 1993, overseen by organizations like AMFI and SEBI. Investors benefit from professional management and diversification but face challenges like delays in redemption and management fees.

1. Mutual
funds
Presented by:
Yogesh Chayal(13323)
Tejveer Ruhil(13305)

2. What are mutual funds.
• Mutual funds are a type of investment that takes
money from many investors and uses it to make
investments based on a stated investment
objective.
or
• 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. • Each shareholder in the mutual fund
participates proportionally (based upon
the number of shares owned) in the gain or
loss of the fund.
(investment) (return)
40
20
40
100 200
80 80
40A
A
B
B
C
C

4. History of Mutual funds
• The mutual fund industry in India began in 1963 with the
formation of the Unit Trust of India (UTI) as an initiative
of the Government of India and the Reserve Bank of
India.
• Much later, in 1987, SBI Mutual Fund became the first
non-UTI mutual fund in India.
• Subsequently, the year 1993 heralded a new era in the
mutual fund industry. This was marked by the entry of
private companies in the sector. After the Securities and
Exchange Board of India (SEBI) Act was passed in 1992,
the SEBI Mutual Fund Regulations came into being in
1996.

5. • As the industry expanded, a non-profit organization,
the Association of Mutual Funds in India
(AMFI), was established on 1995.
• Its objective is to promote healthy and ethical
marketing practices in the Indian mutual fund
Industry.
• SEBI has made AMFI certification mandatory
for all those engaged in selling or marketing mutual
fund products.

6. Investors
Fund
Securities
Return
Mutual Fund Operation
Flow Chart
Given back to Pool their money in
That generates Which is invested in

7. • After investing your money in a mutual fund, you
can earn returns in two forms:
• Dividend Income :In the form of dividends
declared by the scheme, Fund will earn interest
income from the bonds it holds or will have
dividend income from the shares
• Capital appreciation - meaning an increase in
the value of your investments.
As the value of securities in the fund increases,
the fund's unit price will also increase. You can
make a profit by selling the units at a price higher
than at which you bought
How does one earnreturns in a mutual
funds?

8. What the investor has to pay:
• The company that puts together a mutual fund is called an
AMC(Asset management company)
• The AMC hires a professional money manager, who buys
and sells securities in line with the fund's stated objective.
• In return for such services, Asset Management Companies
charge small fees. AMCs charge an annual fee, or expense
ratio that covers administrative expenses, salaries,
advertising expenses, brokerage fee, etc.
• So along with the amount invested you have
to just pay an annual fees to the AMC.

9. Advantages
• 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.
• 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.

10. • 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
• Affordability :The minimum initial investment for a
mutual fund is fairly low for most funds (as low as Rs500
for some schemes).

11. DISADVANTAGES
• Delay in redemption: It takes 3-6 days for redemption of
the units and the money to flow back into the investor’s
account.
• 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.
• 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.

12. CONFUSION BETWEEN
Mutual Fund Scheme & Portfolio
Management Scheme
In case of Mutual Fund schemes, the funds of large number of
investors is pooled to form a common investible corpus and the
gains / losses are same for all the investors during that given
period of time.
On the other hand, in case of Portfolio Management Scheme,
the funds of a particular investor remain identifiable and gains
and losses for that portfolio are attributable to him only. Each
investor's funds are invested in a separate portfolio and there is
no pooling of funds.

13. Organization of a Mutual
Fund
•
Fund Sponsor
Trustees
Asset Management Company
Depository Agent
Custodian

14. • 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

15. SPONSORS
• 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.

16. 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.
• Trustees appoint the Asset Management Company (AMC),
to manage investor’s money.

17. 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 signs with the Trustees.

18. • 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.
• The responsibility of preparing the OD lies with the AMC.
• Appointments of intermediaries like independent
financial advisors (IFAs), national and regional
distributors, banks, etc. is also done by the AMC.
• Finally, it is the AMC which is responsible for the acts of
its employees and service providers.

19. Custodian
• A custodian’s role is keeping custody of the securities that are
bought by the fund manager and also keeping a tab on the
corporate actions like rights, bonus and dividends declared by
the companies in which the fund has invested.
• The Custodian is appointed by the Board of Trustees. The
custodian also participates in a clearing and settlement system
through approved depository companies on behalf of mutual
funds, in case of dematerialized securities.
• Only the physical securities are held by the Custodian. The
deliveries and receipt of units of a mutual fund are done by
the custodian or a depository participant at the instruction of
the AMC and under the overall direction and responsibility of
the Trustees. Regulations provide that the Sponsor and the
Custodian must be separate entities.

20. Registrar and transfer
agents
• The registrar and transfer agents are appointed by the AMC.
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
• Issuing dividend or income warrents

21. Fund accountants
• Fund accountants are appointed by the AMC. The are in
charge of maintaining proper books of accounts relating to the
fund transactions and management. The perform the
following functions
• Computing the net asset value per unit of the scheme on a
daily basis
• Maintaining its books and records
• Monitoring compliance with the schemes, investment
limitations as well as SEBI regulations
• Preparing and distributing reports of the schemes for the unit
holders and SEBI and monitoring the performance of mutual
funds custodians and other service providers.

22. Lead manager
• Lead manager carry out the following functions:
• Selecting and coordinating the activities of
intermediaries such as advertising agency,
printers, collection centers.
• Carrying out extensive campaign about the
scheme and acting as marketing associates to
attract investors.
• Assisting the AMC to approach potential
investors through meetings, exhibitions,
contacts, advertising, publicity and sales
promotion.

23. Investment advisors
• Investment advisors carry out market and
security analysis.
• Advising the AMC to design its investment
strategies on a continuous basis.
• They are paid for their professional advice
regarding fund investment on the average
weekly value of the fund’s net assets.

24. Legal advisors
• Legal advisors are appointed to offer
legal guidance about planning and
execution of different schemes.
• A group of advocates and solicitors
may be appointed as legal advisors.
• Their fee is not associated with net
assets of the fund.

25. TYPES OF MUTUAL FUNDS:
• Investors have the option of choosing from a wide variety
of schemes in a mutual fund depending upon their
requirements. MF’s are classified as follows:
• Operational classification:
• Open ended scheme: when a fund is accepted and
liquidated on a continuous basis by a MF manager,
it is called as open ended scheme. The fund
manager buys and sells units constantly as
demanded by the investors. The scheme provides
excellent liquidity facility to the investors. The
buying and selling of units takes place at a declared
NAV(Net Asset Value)

26. • Close ended scheme: when a units of a scheme
is liquidated only after the expiry of a specified
period it is known as close ended fund.
Managing a close ended scheme is
comparatively easy for the fund Manager. The
fund can be liquidated after a specified period.
• Interval scheme: it is kind of close ended scheme
with a feature that it remains open during a
particular part of the year for the benefit of
investors, to either off load or to undertake
purchase of units at a NAV.

27. Return based classification
• Income fund scheme: this scheme is customised to suit
the needs of investors who are particular about regular
returns. The scheme offers maximum current income
where by the income earned by the units is distributed
periodically there are 2 types of such schemes, one that
earns a target constant income at relatively low risk while
the other offers maximum possible income.
• Growth scheme: it is a MF scheme that offers the
advantage of capital appreciation of the underlying
investment such funds invest in growth oriented
securities that are capable of appreciating in the long
run. The risk attached with such funds is relatively higher.

28. • Conservative fund Scheme: a scheme that aims at
providing a reasonable rate of return, protecting the
value of investment and achieving capital appreciation is
called a conservative fund scheme. It is also known as
middle of road funds as it offers a blend of the above
features. Such funds divide their portfolio in stocks and
bonds in such a way that it achieves the desired
objective.

29. Investment based classification
• Equity fund: such fund invest in equity shares they carry a high
degree of risk such fund do well in favorable market
conditions. Investments are made in equity shares in diverse
industries and sectors.
• Debt funds: Such fund invest in debt instruments like bonds
and debentures. These funds carry the advantage of secure
and steady income there is little chance of capital
appreciation. Such funds carry no risk. A variant of this type of
fund is called liquid fund which specializes in investing in short
term money market instruments.
• Balanced funds: such scheme have a mix of debt and equity in
their portfolio of investments. The portfolio is often shifted
between debt and equity depending upon the prevailing
market conditions.

30. • Sectoral fund: Such fund invest in specific sectors of the
economy. The specialized sectors may include real estate
infrastructure, oil and gas etc, offshore investments,
commodities like gold and silver.
• Leverage funds: the funds that are created out of
investments with not only the amount mobilized from
investors but also from borrowed money from the capital
markets are known as leveraged funds. Fund managers
pass on the benefit of leverage to the mutual fund
investors. Additional provisions must be made for such
funds to operate. Leveraged funds use short sale to take
advantage of declining markets in order to realize gains.
Derivative instruments like options are used by such
funds.

31. • Gilt fund : These funds seek to generate returns through
investment in govt. securities. Such funds invest only in
central and state govt. securities and REPO/ reverse REPO
securities. A portion of the corpus may be invested in call
money markets to meet liquidity requirements. Such funds
carry very less risk. Their prices are influenced only by
moment in interest rates.
• Indexed funds: these funds are linked to specific index.
Funds mobilized under such schemes are invested in
securities of companies included in the index of any
exchange. The fund performance is linked to the growth in
concerned index.

32. 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

33. Sharpe’s model
• 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

34. Treynor’s model
• 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

35. Operational Efficiency of Mutual
funds
• Net Returns: the operational efficiency of a mutual fund
is best judged by its ability to earn for the investors
better and safe returns in the form of capital
appreciation and the dividends or income received on
such investment.
• Returns are calculated keeping in mind the expenses
incurred while earning such returns which include
trusteeship fee, management fee, administrative fee,
fund accounting fee, initial charges, brokerage etc.
SEBI has fixed an overall limit on expenses as per the
regulations.

36. • Net Asset Value: It is another parameter to measure the
operational efficiency of the fund. The intrinsic value of a unit
under a specific scheme is referred to as the NAV of the
scheme. The value gives an idea of the amount that may be
obtained by the unit holder on sale of the unit to the mutual
fund company
NAV (per unit) = Total Market Value – Fund liabilities
No. of outstanding Units
• Load : The initial expenses that are incurred by a mutual fund
in relation to the scheme operated by it is referred to as the
load of the scheme. According to SEBI guidelines a certain
percentage of load must be borne by the expected scheme.
• Disclosures: A highly transparent nature of mutual fund is said
to operate to benefit the investors and service their needs.
MFs are supposed to follow certain norms and ample
disclosures for their operation. Disclosures are made through
half yearly and annual reports where all the information
relating to the scheme is disclosed.